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Texas Service Sector Activity Expands at a Slower Pace

Texas Service Sector Outlook Survey

Report in PDF

October 30, 2018

Texas Service Sector Activity Expands at a Slower Pace

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on credit availability and borrowing conditions. Results for these questions from the Texas Manufacturing Outlook Survey, Texas Service Sector Outlook Survey and Texas Retail Outlook Survey have been released together. Read the Special Questions results.

Texas service sector activity continued to grow in October, according to business executives responding to the Texas Service Sector Outlook Survey. The revenue index, a key measure of state service sector conditions, fell from 26.9 in September to 19.4 in October.

Labor market indicators continued to reflect employment growth and longer workweeks this month. The employment index was mostly unchanged at 13.1, while the hours worked index also held steady at 6.2.

Perceptions of broader economic conditions reflected less optimism in October. The general business activity index plunged from 25.6 to 14.1, while the company outlook index declined 10 points to 11.2. Nevertheless, the outlook uncertainty index dipped slightly from 9.0 in September to 8.0 in October.

Price and wage pressures remained elevated this month. The wages and benefits index inched down from 21.6 to 20.2 in October. The selling price index was largely unchanged at 16.1.

Respondents’ expectations regarding future business conditions were positive but somewhat diminished compared with September. The future general business activity index fell seven points to 20.9, its lowest value in over a year, while the future company outlook index fell over five points to 22.8. Other indexes of future service sector activity, such as revenue and employment, continued to reflect optimism this month.

Texas Retail Outlook Survey

October 30, 2018

Retail Sales Increase at a Slower Pace

Retail sales continued to grow in October but at a slower pace compared with September, according to business executives responding to the Texas Retail Outlook Survey. The sales index declined from 24.2 in September to 14.8 in October. Growth in inventories slowed significantly, with the inventories index plummeting over 16 points to 6.0.

Retail employment growth decelerated and workweeks continued to increase this month. The employment index declined sharply but remained positive at 5.6. The hours worked index was largely unchanged at 4.4.

Retailers’ perceptions of broader economic conditions reflected less optimism in October. The general business activity index plummeted from 21.2 to -1.1, while the company outlook index declined nearly 20 points to 2.8.

Retail price pressures eased but wage pressures increased in October. The selling prices index declined nearly 10 points but remained elevated at 19.7. The wages and benefits index increased from 15.0 to 17.5.

Retailers’ perceptions of future economic conditions softened considerably in October. The index of future general business activity declined 14 points to 6.8, its lowest reading in over a year. Future company outlooks were less optimistic, as the index declined nine points to 13.6. Other indexes of future retail sector activity, such as sales and employment, remained solidly in positive territory.

The Texas Retail Outlook Survey is a component of the Texas Service Sector Outlook Surveythat uses information only from respondents in the retail and wholesale sectors.

Next release: November 27, 2018

Data were collected Oct. 16–24, and 225 Texas service sector and 58 retail sector business executives responded to the survey. The Dallas Fed conducts the Texas Service Sector Outlook Survey monthly to obtain a timely assessment of the state’s service sector activity. Firms are asked whether revenue, employment, prices, general business activity and other indicators increased, decreased or remained unchanged over the previous month.

Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase. When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the prior month. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the prior month. An index will be zero when the number of firms reporting an increase is equal to the number of firms reporting a decrease. Data have been seasonally adjusted as necessary.

Texas Service Sector Outlook Survey

October 30, 2018

Historical data are available from January 2007 to the most current release month.

Business Indicators Relating to Facilities and Products in Texas
Current (versus previous month)
IndicatorOct IndexSep IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

19.4

26.9

–7.5

Increasing

106

32.9

53.6

13.5

Employment

13.1

13.8

–0.7

Increasing

104

20.2

72.7

7.1

Part–Time Employment

5.4

5.4

0.0

Increasing

9

8.2

89.0

2.8

Hours Worked

6.2

6.9

–0.7

Increasing

24

9.2

87.8

3.0

Wages and Benefits

20.2

21.6

–1.4

Increasing

113

23.1

74.0

2.9

Input Prices

28.6

28.5

+0.1

Increasing

114

30.8

67.0

2.2

Selling Prices

16.1

15.4

+0.7

Increasing

32

18.8

78.5

2.7

Capital Expenditures

12.6

18.5

–5.9

Increasing

110

18.7

75.3

6.1

General Business Conditions
Current (versus previous month)
IndicatorOct IndexSep IndexChangeIndicator Direction*Trend** (Months)% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

11.2

21.2

–10.0

Improving

28

18.9

73.5

7.7

General Business Activity

14.1

25.6

–11.5

Improving

26

22.5

69.0

8.4

IndicatorOct IndexSep IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

8.0

9.0

–1.0

Increasing

9

19.7

68.5

11.7

Business Indicators Relating to Facilities and Products in Texas
Future (six months ahead)
IndicatorOct IndexSep IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

43.7

46.9

–3.2

Increasing

116

53.4

36.9

9.7

Employment

33.4

32.1

+1.3

Increasing

115

40.0

53.4

6.6

Part–Time Employment

12.4

10.9

+1.5

Increasing

76

15.9

80.6

3.5

Hours Worked

6.1

8.7

–2.6

Increasing

26

11.8

82.5

5.7

Wages and Benefits

48.5

49.2

–0.7

Increasing

142

51.0

46.5

2.5

Input Prices

50.0

46.9

+3.1

Increasing

142

52.3

45.5

2.3

Selling Prices

33.6

33.7

–0.1

Increasing

114

37.3

59.0

3.7

Capital Expenditures

29.5

28.4

+1.1

Increasing

115

34.0

61.6

4.5

General Business Conditions
Future (six months ahead)
IndicatorOct IndexSep IndexChangeIndicator Direction*Trend** (Months)% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

22.8

28.1

–5.3

Improving

32

32.6

57.7

9.8

General Business Activity

20.9

28.1

–7.2

Improving

32

30.4

60.0

9.5

Texas Retail Outlook Survey

October 30, 2018

Historical data are available from January 2007 to the most current release month.

Business Indicators Relating to Facilities and Products in Texas
Retail (versus previous month)
IndicatorOct IndexSep IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

14.8

24.2

–9.4

Increasing

6

35.5

43.8

20.7

Employment

5.6

17.9

–12.3

Increasing

14

16.8

72.0

11.2

Part–Time Employment

0.0

2.3

–2.3

No Change

1

8.8

82.5

8.8

Hours Worked

4.4

3.5

+0.9

Increasing

16

11.2

82.0

6.8

Wages and Benefits

17.5

15.0

+2.5

Increasing

92

21.7

74.1

4.2

Input Prices

31.0

31.5

–0.5

Increasing

33

35.6

59.8

4.6

Selling Prices

19.7

29.5

–9.8

Increasing

19

29.9

59.9

10.2

Capital Expenditures

5.2

16.0

–10.8

Increasing

27

13.8

77.6

8.6

Inventories

6.0

22.3

–16.3

Increasing

5

23.3

59.4

17.3

Companywide Retail Activity

Companywide Sales

16.6

17.4

–0.8

Increasing

6

34.0

48.7

17.4

Companywide Internet Sales

6.1

6.9

–0.8

Increasing

6

22.3

61.5

16.2

General Business Conditions, Retail
Current (versus previous month)
IndicatorOct IndexSep IndexChangeIndicator Direction*Trend** (Months)% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

2.8

22.7

–19.9

Improving

19

18.1

66.6

15.3

General Business Activity

–1.1

21.2

–22.3

Worsening

1

16.5

65.9

17.6

Outlook Uncertainty
Current (versus previous month)
IndicatorOct IndexSep IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

5.2

2.3

+2.9

Increasing

5

20.7

63.8

15.5

Business Indicators Relating to Facilities and Products in Texas, Retail
Future (six months ahead)
IndicatorOct IndexSep IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

25.7

35.4

–9.7

Increasing

116

43.2

39.2

17.5

Employment

22.8

22.5

+0.3

Increasing

17

26.5

69.8

3.7

Part–Time Employment

10.0

1.2

+8.8

Increasing

8

14.1

81.8

4.1

Hours Worked

1.4

4.4

–3.0

Increasing

15

9.4

82.6

8.0

Wages and Benefits

40.7

45.9

–5.2

Increasing

118

44.8

51.2

4.1

Input Prices

38.9

34.9

+4.0

Increasing

114

42.6

53.7

3.7

Selling Prices

28.3

34.1

–5.8

Increasing

114

34.0

60.4

5.7

Capital Expenditures

14.8

11.6

+3.2

Increasing

25

20.4

74.1

5.6

Inventories

16.5

8.5

+8.0

Increasing

24

27.2

62.1

10.7

Companywide Retail Activity

Companywide Sales

27.4

33.6

–6.2

Increasing

115

42.7

42.0

15.3

Companywide Internet Sales

10.3

20.7

–10.4

Increasing

27

28.2

53.8

17.9

General Business Conditions, Retail
Future (six months ahead)
IndicatorOct IndexSep IndexChangeIndicator Direction*Trend** (Months)% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

13.6

22.1

–8.5

Improving

23

28.4

56.8

14.8

General Business Activity

6.8

20.5

–13.7

Improving

26

24.8

57.2

18.0

*Indicator direction refers to this month's index. If index is positive (negative), indicator is increasing (decreasing) or improving (worsening). If zero, indicator is unchanged.

**Number of months moving in current direction.

†Added to survey in January 2018.

Data have been seasonally adjusted as necessary, with the exception of the outlook uncertainty index which does not yet have a sufficiently long time series to test for seasonality.

Texas Service Sector Outlook Survey

October 30, 2018

Downloadable chart

Texas Retail Outlook Survey

October 30, 2018

Downloadable chart

Texas Service Sector Outlook Survey

October 30, 2018

Comments from Survey Respondents

These comments are from respondents' completed surveys and have been edited for publication.

Support Activities for Mining

  • We are seeing some issues/price increases from tariffs.

Utilities

  • There continues to be an increase in the level of uncertainty related to the trade disputes. It appears that activity is starting to slow down some as this uncertainty is built into forecasts for next year.

Pipeline Transportation

  • The increase in uncertainty is related to imposition of tariffs and trade issues.

Data Processing, Hosting and Related Services

  • The red tape to get deals done has definitely increased. There is a lot of due diligence to understand potential “risks” of compliance, regulations, technology, data and company details. Business looks good; it's just much harder to get to the revenue nowadays.

Credit Intermediation and Related Activities

  • The only negative factor in our region curtailing business activity at this time is a tremendous amount of rain. The good can be bad sometimes. Projects are being delayed all over Central and East Texas with flooding becoming more prevalent. The second phase of the wind farm is beginning to ramp up, and that activity will help several rural communities. Sale tax revenues were up again for the county, and that should continue through hunting season.
  • I’m concerned that interest rates are being raised too quickly instead of gradually.
  • Wage and input cost increases are reducing profitability. Demand for financial services is beginning to slow.

Securities, Commodity Contracts, and Other Financial Investments and Related Activities

  • We are in the real estate services industry. Activity is tanking and doing so at a rapid clip. We work with homebuilders who are reporting a seismic cliff. One statewide builder we work with went from 130 average orders each month this year to seven. Mortgage companies we work with are terminating large groups of employees each week due to the massive decline in their business. Our orders are down as well. There is a sudden and swift negative change being felt in the real estate service industry.
  • Wages and benefits are increasing faster than can be passed on in price increases.

Insurance Carriers and Related Activities

  • Rising rates are causing uncertainty in the housing market. We are watching closely.

Real Estate

  • Mid-term elections have put the upper-end housing market on pause. We feel like activity will pick up after folks are able to digest the election results.
  • The Kavanaugh hearings were stressful psychologically to buyers. San Antonio has had a lot of rain, which keeps people less happy.

Professional, Scientific and Technical Services

  • Not only are there fewer zoning entitlement jobs available but also more competition that drives down pricing. I would suspect that we will see a reduction in building permits as a result.
  • The market is going through a shakeout at the moment—fewer competitors in the future.
  • No doubt there is some uncertainty creeping into the outlook. Volatility in markets is tied to rising rates and uncertainty around how high they will climb, political instability, both home and abroad, lingering trade issues, etc. We generally believe 2019 holds some promise of continued growth, but it is likely to be a bumpy road to get there (and also somewhat muted compared to “bursts” in 2018). Clients are just being somewhat cautious right now as we all watch to see what does in fact transpire.
  • The economy and business climate are excellent in the U.S. and worldwide. Our software products are selling very well worldwide. We expect stronger 2018 revenue and profit for our company than in 2017.
  • We finally got a resolution to NAFTA (North American Free Trade Agreement). This should “open the faucet” for new projects and investment.
  • Rising mortgage rates have slowed down home sales in the residential market but have not had much effect on the commercial market. Going into the fourth quarter, we see the commercial market remaining strong, with continued easing in the residential market. We anticipate the commercial market will follow suit sometime during 2019. This is still a great market, but it is returning to a more traditional market of the past.
  • Things are actually surprisingly good for us right now. I feel like we may have to hire soon, but the fortunate thing for us is that in our industry (marketing), we can hire remote and fractionally.
  • This month's revenue decrease is a one-time event due to reworking of some prior months’ billing, and it’s not expected to affect annual or long-term results.
  • Tariffs are affecting us as is the political unrest. Mid-term elections are not helping. There is abundant negativity and pessimism.
  • We continue to worry regarding the impact of trade wars; the increase in interest rates; a slowdown in real estate (primarily east coast, but expect it to spread); and mid-term elections.
  • We are completely clueless as to the future. Proposals are at the same level as 2009, but new work continues to come in the door.

Management of Companies and Enterprises

  • There is too much government regulation.

Administrative and Support Services

  • We continue to see mixed results with our customers. Some are doing well and growing, and some are cutting back and lowering budgets.
  • The corporate aviation sector has remained consistent from last month—no major changes in either direction. The industrial sector (machined components) has had lower RFQs (request for quotations) from last month. The industrial sector (oil and gas) has seen an increase in RFQs from last month. Overall, conditions seem to have stabilized, with some pessimism creeping into the minds of other company owners that I have talked with.
  • September and October have been very, very rainy. It has substantially reduced production and, consequently, backlogs have increased and profits decreased for the year.
  • The business model is changing—moving away from a middle supplier and toward individual service.
  • As a government contractor and a recipient of two new government contracts, my company's five-year plan looks very healthy.

Ambulatory Health Care Services

  • Our increase noted for the future six months relates to expected increases in health care costs, not an increase in wages, which have been stable.

Nursing and Residential Care Facilities

  • Continued high levels of new construction have created an oversupply of seniors’ housing that continues to worsen conditions within the industry.
  • There is uncertainty about health care policy issues—Medicare payment policies, regulatory pressures, “alternative payment mechanisms,” merger/acquisition activity in the health care marketplace, etc.—with an increasing federal budget deficit creating intense pressure on health care providers.

Performing Arts, Spectator Sports and Related Industries

  • We continue to look for dependable employees.

Amusement, Gambling and Recreation Industries

  • It is absolutely a nightmare to hire and retain employees in hospitality and many related fields like truck drivers to bring the food and beverages to us, etc. Therefore, we are constantly readjusting wages, schedules and benefits. As an example, we have been told that one of the big hotels is so desperate for employees that they are sending shuttle buses back and forth to San Antonio to pick up employees. This is before three or four new hotels are about to open up in downtown. The cost of living in Austin continues to rise, and it is very difficult to keep employees coming downtown. We are about to break under the weight of our own success.

Accommodation

  • Revenue growth is challenged.
  • Many of the increases are a result of the seasonality of the business, particularly in Florida and California. Cost increases (input and capital) are no surprise; historically, we accelerate spending in the first quarter to prepare for business demands in the second and third quarters.

Food Services and Drinking Places

  • The mid-term elections contain significant uncertainty.
  • We will have a price increase in January to cover raises and cost increases routinely passed on from our vendors. Raises will probably average about 3 percent, and price increases will be approximately 2 percent overall.
  • It is very difficult to find unskilled and semi-skilled workers. Pay requests are unusually high.
  • We are still recovering from Hurricane Harvey. The heavy rains from tropical system invest 95L caused another temporary shutdown and additional repairs.
  • Lots of rain during September hurt our sales.
  • Our business slows down September, October and November and it picks up again in December. Those are our three worst months.

Religious, Grantmaking, Civic, Professional and Similar Organizations

  • Uncertainty of health care affects expense planning.

Merchant Wholesalers, Durable Goods

  • An increase in input and selling prices is primarily due to import tariffs.

Motor Vehicle and Parts Dealers

  • Increased interest rates will negatively affect the middle-market companies.
  • Orders to the manufacturers of the products we sell (medium and heavy trucks) have increased significantly, and the ability to get parts and make room for additional production has been difficult.
  • Higher interest rates are impacting us and will get worse with additional hikes coming. Margins continue to be compressed. Expenses have increased; floor planning, health care and property taxes are major concerns. Consumer “affordability” is a problem and that, too, will become a greater problem. Manufacturers can't continue to increase to offset interest rate hikes and other expenses. The business model is flawed.

Building Material and Garden Equipment and Supplies Dealers

  • We feel rates are going up too fast and something is wrong with GDP (gross domestic product), unemployment, etc. We don’t think the economy is as good as they’re saying.

Health and Personal Care Stores

  • In the pharmacy business, the insurance industry still creates extremes in reimbursement and is still the leading cause of economic uncertainty. I am considering a new store in the near future, and locally high rents are an important factor in considering the location, even though it seems that retail and office space is overbuilt.

Clothing and Clothing Accessories Stores

  • The tariff issues are getting scary.

 

Historical Data

Historical data can be downloaded dating back to January 2007.

Indexes

Download indexes for all indicators. For the definitions of all variables, see Data Definitions.

Texas Service Sector Outlook Survey
Texas Retail Outlook Survey
Unadjusted Unadjusted
Seasonally adjusted Seasonally adjusted

All Data

Download indexes and components of the indexes (percentage of respondents reporting increase, decrease, or no change). For the definitions of all variables, see Data Definitions.

Texas Service Sector Outlook Survey
Texas Retail Outlook Survey
Unadjusted Unadjusted
Seasonally adjusted Seasonally adjusted

Questions regarding the Texas Service Sector Outlook Survey can be addressed to Christopher Slijk at christopher.slijk@dal.frb.org.

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