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Growth in the Texas Service Sector Accelerates

Texas Service Sector Outlook Survey

Report in PDF

December 31, 2019

Growth in the Texas Service Sector Accelerates

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on wages and prices. 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.

The Texas service sector grew at a faster pace in December, according to business executives responding to the Texas Service Sector Outlook Survey. The revenue index, a key measure of state service sector conditions, increased from 12.2 in November to 17.9 in December.

Labor market indicators reflected slightly slower employment growth and slightly longer workweeks this month. The employment index edged down from 7.0 to 5.5, suggesting a slight deceleration in hiring. The part-time employment index rebounded to 2.3 after dipping into negative territory last month. The hours worked index ticked up to 4.1.

Perceptions of broader business conditions continued to improve. The general business activity index increased nine points to 13.5, its highest reading in more than a year. The company outlook index was largely unchanged at 11.3. The outlook uncertainty index receded to 1.4, its lowest reading in nearly two years.

Price and wage pressures increased in December. The wages and benefits index moved up from 16.2 to 19.2, while the input prices index held steady at 25.7. The selling prices index rose to 6.9, a six-month high.

Respondents’ expectations regarding future business conditions improved in December. The future company outlook index remained positive but edged down to 15.6, while the future general business activity index shot up nine points to 17.6. Other indexes of future service sector activity, such as revenue and employment, remained in solidly positive territory, suggesting expectations of continued growth over the next six months.

Texas Retail Outlook Survey

December 31, 2019

Retail Sales Growth Picks Up

Growth in retail sales accelerated markedly in December, according to business executives responding to the Texas Retail Outlook Survey. The sales index rose seven points to 13.5, its highest level in more than a year. Inventories increased, with the index rising to 13.6 after a near-zero reading in November.

Retail labor market indicators suggested slower employment growth and longer workweeks in December. The employment index remained positive but slipped five points to 2.5, while the part-time employment index shot up 16 points, rebounding from -6.2 to 9.6. The hours worked index also rebounded from negative territory, rising from -0.9 to 10.7.

Retailers’ perceptions of broader business conditions continued to reflect optimism in December, and uncertainty decreased. The general business activity index was largely unchanged at 8.3. The company outlook index surged 10 points to 15.0, its highest reading in more than a year. The outlook uncertainty index plunged from 14.3 to -9.5, hitting its lowest level since we added the question in January 2018. The negative December reading indicates that a larger share of businesses said uncertainty regarding their outlook decreased than said it increased.

Retail price pressures remained steady while wages pressures picked up in December. The input prices and selling prices indexes held steady at 20.7 and 18.4, respectively. The wages and benefits index climbed 11 points to 25.1, its highest reading since August 2018.

Retailers’ perceptions of future business conditions improved notably this month. The future general business activity index rose from 1.4 to 14.0, and the future company outlook index rose from 4.6 to 13.9. Other indexes of future retail activity, such as sales and employment, rose substantially, suggesting more bullish expectations for growth over the next six months.

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

Next release: January 28, 2019

Data were collected December 16–24, and 221 Texas service sector and 53 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

December 31, 2019

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)
IndicatorDec IndexNov IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

17.9

12.2

+5.7

12.2

121(+)

34.2

49.5

16.3

Employment

5.5

7.0

–1.5

6.7

118(+)

16.8

71.9

11.3

Part–Time Employment

2.3

–2.2

+4.5

1.8

1(+)

6.3

89.7

4.0

Hours Worked

4.1

2.9

+1.2

2.8

38(+)

7.8

88.5

3.7

Wages and Benefits

19.2

16.2

+3.0

14.6

127(+)

22.8

73.6

3.6

Input Prices

25.7

24.7

+1.0

25.4

128(+)

28.7

68.3

3.0

Selling Prices

6.9

0.7

+6.2

5.5

2(+)

15.9

75.1

9.0

Capital Expenditures

11.8

10.4

+1.4

10.8

124(+)

19.3

73.2

7.5

General Business Conditions
Current (versus previous month)
IndicatorDec IndexNov IndexChangeSeries
Average
Trend**% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

11.3

10.3

+1.0

6.2

4(+)

21.7

67.9

10.4

General Business Activity

13.5

4.7

+8.8

4.0

7(+)

22.3

68.8

8.8

IndicatorDec IndexNov IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

1.4

11.2

–9.8

11.4

23(+)

14.9

71.6

13.5

Business Indicators Relating to Facilities and Products in Texas
Future (six months ahead)
IndicatorDec IndexNov IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

37.8

36.3

+1.5

37.9

130(+)

48.8

40.3

11.0

Employment

22.3

22.6

–0.3

22.2

129(+)

30.5

61.3

8.2

Part–Time Employment

8.7

6.0

+2.7

6.7

6(+)

14.1

80.5

5.4

Hours Worked

4.5

3.9

+0.6

5.4

40(+)

7.8

88.9

3.3

Wages and Benefits

39.4

36.8

+2.6

36.5

156(+)

41.4

56.6

2.0

Input Prices

46.6

39.4

+7.2

44.5

156(+)

48.5

49.6

1.9

Selling Prices

26.5

22.9

+3.6

23.4

128(+)

32.7

61.1

6.2

Capital Expenditures

29.0

23.7

+5.3

24.2

129(+)

36.0

57.0

7.0

General Business Conditions
Future (six months ahead)
IndicatorDec IndexNov IndexChangeSeries
Average
Trend**% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

15.6

17.6

–2.0

17.0

12(+)

25.8

64.0

10.2

General Business Activity

17.6

8.5

+9.1

13.6

4(+)

27.0

63.6

9.4

Texas Retail Outlook Survey

December 31, 2019

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)
IndicatorDec IndexNov IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

13.5

6.2

+7.3

6.9

4(+)

35.6

42.4

22.1

Employment

2.5

7.6

–5.1

2.4

3(+)

10.5

81.5

8.0

Part–Time Employment

9.6

–6.2

+15.8

–1.6

1(+)

11.5

86.5

1.9

Hours Worked

10.7

–0.9

+11.6

–1.3

1(+)

13.2

84.3

2.5

Wages and Benefits

25.1

13.8

+11.3

9.9

106(+)

30.7

63.7

5.6

Input Prices

20.7

20.9

–0.2

19.1

47(+)

26.1

68.5

5.4

Selling Prices

18.4

17.7

+0.7

10.4

33(+)

26.5

65.4

8.1

Capital Expenditures

5.7

6.1

–0.4

9.5

11(+)

13.2

79.2

7.5

Inventories

13.6

–0.5

+14.1

3.9

1(+)

31.4

50.8

17.8

Companywide Retail Activity

Companywide Sales

15.6

–1.8

+17.4

8.5

1(+)

30.6

54.4

15.0

Companywide Internet Sales

14.8

12.2

+2.6

7.0

20(+)

19.1

76.6

4.3

General Business Conditions, Retail
Current (versus previous month)
IndicatorDec IndexNov IndexChangeSeries
Average
Trend**% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

15.0

5.4

+9.6

4.5

3(+)

25.9

63.2

10.9

General Business Activity

8.3

9.6

–1.3

0.0

2(+)

20.0

68.3

11.7

Outlook Uncertainty
Current (versus previous month)
IndicatorDec IndexNov IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

–9.5

14.3

–23.8

9.7

1(–)

9.4

71.7

18.9

Business Indicators Relating to Facilities and Products in Texas, Retail
Future (six months ahead)
IndicatorDec IndexNov IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

34.0

10.6

+23.4

32.7

7(+)

41.2

51.6

7.2

Employment

11.7

–8.1

+19.8

12.5

1(+)

16.7

78.3

5.0

Part–Time Employment

15.4

–0.4

+15.8

0.7

1(+)

15.5

84.4

0.1

Hours Worked

1.1

–5.4

+6.5

2.7

1(+)

6.5

88.1

5.4

Wages and Benefits

33.4

26.9

+6.5

27.4

132(+)

35.0

63.4

1.6

Input Prices

44.0

31.9

+12.1

33.1

128(+)

44.0

56.0

0.0

Selling Prices

40.8

29.8

+11.0

29.2

128(+)

40.8

59.2

0.0

Capital Expenditures

16.3

–6.4

+22.7

18.3

1(+)

20.4

75.5

4.1

Inventories

12.3

–11.0

+23.3

8.4

1(+)

18.2

75.9

5.9

Companywide Retail Activity

Companywide Sales

27.7

18.5

+9.2

31.2

129(+)

35.5

56.7

7.8

Companywide Internet Sales

26.8

13.9

+12.9

21.9

41(+)

26.8

73.2

0.0

General Business Conditions, Retail
Future (six months ahead)
IndicatorDec IndexNov IndexChangeSeries
Average
Trend**% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

13.9

4.6

+9.3

17.4

4(+)

23.5

66.9

9.6

General Business Activity

14.0

1.4

+12.6

13.1

2(+)

21.7

70.6

7.7

*Shown is the number of consecutive months of expansion or contraction in the underlying indicator. Expansion is indicated by a positive index reading and denoted by a (+) in the table. Contraction is indicated by a negative index reading and denoted by a (–) in the table.

**Shown is the number of consecutive months of improvement or worsening in the underlying indicator. Improvement is indicated by a positive index reading and denoted by a (+) in the table. Worsening is indicated by a negative index reading and denoted by a (–) in the table.

†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

December 31, 2019

Downloadable chart

Texas Retail Outlook Survey

December 31, 2019

Downloadable chart

Texas Service Sector Outlook Survey

December 31, 2019

Comments from Survey Respondents

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

Utilities

  • Hiring is requiring us to increase wages to match other companies due to the shortage of workers.
  • There are a lot of questions about the financial health of the oil and gas industry as we head into 2020. I’m starting to hear a lot of talk about a large increase in workforce reductions. This would have a significant impact on the Texas economy. The new NAFTA [North American Free Trade Agreement] has helped mitigate some of the uncertainty for next year.

Support Activities for Transportation

  • The recent trade deal provides some optimism, but there is a still a lot of uncertainty as we look beyond the next few months.
  • We signed a 20-year contract with four extensions of 10 years each with a major customer, with an over $100 million project breaking ground in first or second quarter 2020.

Warehousing and Storage

  • Our view of near- and mid-term business conditions remains the same as in prior months—very positive. Growth in South Texas remains strong, and the planned crude pipelines that we have been watching for the past two years are finally pumping crude for export.

Data Processing, Hosting and Related Services

  • Business optimism appears to be good for 2020. Regulations and cybersecurity concerns still loom and make getting deals done more drawn out and costly. The sales cycle is much longer due to the detailed/multi-team due diligence.

Credit Intermediation and Related Activities

  • The decline in interest rates is putting pressure on interest rate margins; there is a greater focus on fee income to offset. In August, it looked like [there would be] a recession by mid-2020. Recent improvement in manufacturing numbers suggest perhaps not, but at this time it appears that the consumer is driving GDP [gross domestic product]. Initial holiday sales may suggest that the consumer is cooling.

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

  • Our company is heavily dependent on the oil and gas industry. Our markets are down, and the prospects are for more slowdown. Our costs keep rising. Taxes, insurance, materials and supplies all keep rising even in our down market. Tough times!

Insurance Carriers and Related Activities

  • I am concerned about the uncertainty of the economy for 2020 with presidential politics and impeachment diverting attention away from the nation’s business. I am more encouraged by the strong Texas economy. My small business merged with a larger organization, so we have additional funding to grow more regionally in Texas, and that is exciting to us.

Real Estate

  • The year has had very little change from last year. However, December has picked up. I believe that six months from now will still be a good time for homeowners selling their houses.

Professional, Scientific and Technical Services

  • We have heard from more economists that we may experience a slowdown in 2020 but not a recession. Some of the trade uncertainties seem to be easing (NAFTA 2.0, China). Some of the annual federal funding has passed and some areas (i.e., transportation) have received higher-than-expected funding. While impeachment and elections could continue to disrupt, some critical legislation continues to go through. All in all, the outlook seems more hopeful than it did about six months ago.
  • Our positive outlook changes are due to strategic business functions. These functions are, to a small degree, supported by a general positive economic outlook, but it is not even close to a 1:1 relationship.
  • Business activity is strong and anticipated to remain strong through the early part of next year.
  • The signature of the new USMCA [United States–Mexico–Canada Agreement] gives certainty to the borderland business environment.
  • The U.S. economy is roaring. We see buyers at all levels coming and purchasing. The global economy is also good except China. Every country except China is purchasing more or keeping the same flow. Our China sales are the only ones that have slowed in 2019.
  • Lack of available entry-level labor who can pass background/drug tests remains our biggest obstacle to growth.
  • Due to the political climate, it is extremely difficult to determine where this economy is headed. We expect next year to remain stable until the election is over.
  • November and December are proving to be surprisingly strong in the engineering services sector. December is often a time when clients slow down, but this year many clients are trying to push through work before year-end.
  • We are seeing a dramatic pickup in activity. We don’t know if it is based on certainty with respect to USMCA, Brexit, a perception of China trade resolution or other, but client activity in the last quarter has been strong, and much stronger than the prior year’s same-quarter numbers and much stronger than first-half 2019.

Management of Companies and Enterprises

  • Uncertainty about interest rates, the political environment and talk of an oil slowdown have many customers and businesses on the sidelines until after the election in November.

Administrative and Support Services

  • We closely monitor the 10-year Treasury as a barometer/indicator. The interest rate environment has changed from expecting an increase throughout 2019 to unlikely during 2020 leading up to the election. Concerns about tariffs have also shifted from very concerned to the expectation that they will moderate during 2020 leading up to the election.
  • The Texas market continues to grow, as well as the opportunities in the major metropolitan areas. West Texas is still weak, and smaller markets are not seeing the gains from growth.
  • We are excited about responding to the market with some new service offerings that will allow us to fill a gap in our current product mix that will uniquely serve a need that has long been ignored by firms in our segment. We believe that listening to the market and responding will put us in a unique position to pick up new work that historically we’ve been unable to provide.
  • It is hard to find quality employees.

Educational Services

  • The passage of USMCA is a positive sign and should bolster growth for all three countries in the quarters ahead. Phase I of China trade is in motion, and that should also provide positive changes in the growth continuum going forward. Impeachment is a non-starter, and the topic will wither on the vine. Going into 2020, there are great headwinds, and I am excited about the American economy in 2020.

Ambulatory Health Care Services

  • CMS PDGM [Centers for Medicare & Medicaid Services Patient-Driven Groupings Model] is affecting home health care agencies.

Nursing and Residential Care Facilities

  • The seniors housing industry continues to be challenged with a demand/supply imbalance.

Amusement, Gambling and Recreation Industries

  • For the first time ever in 65 years, we have had to employ waiters from a temporary service. It is truly impossible to hire qualified people. The downside to this is that these waiters are only moderately trained, certainly do not know our facility very well and come with a hefty price tag. I realize we are not paying them benefits, but this is a big cost to us, but it was the only way we could get through the holiday season. Everywhere you go in Austin there is a help-wanted sign. The levels of service are decreasing at all restaurants and grocery stores and actually anywhere that needs to hire service personnel. We have hit a brick wall as far as providing the type of service we would like to. In addition, there are others that are either going out of business or not expanding because of the labor shortage.

Accommodation

  • Personally, I am not optimistic about 2020. In my view, it will be down from 2019, but at the moment, that is hard to see. How much down remains to be seen. With the deficits we are running, this will eventually catch up with us. Our first quarter is looking very strong at the moment, but I’m not so certain beyond that point. I hope I am just being pessimistic.

Food Services and Drinking Places

  • We are still trying to determine how much West Texas/oilfield activity is slowing.
  • Business increased dramatically in December but is expected to slow somewhat in first quarter 2020.
  • If oil and gas employment goes down, this will affect our business.

Merchant Wholesalers, Durable Goods

  • Energy sector manufacturers, those making parts for the oilfield, in North Texas are very slow at the moment.
  • We have seen a significant slowdown in the industrial contracting business in Texas in late November/early December. These customers continue to state that 2020 will be a good year, and they expect their business to pick up in January 2020.

Merchant Wholesalers, Nondurable Goods

  • Hopefully, the trade war and new U.S.–Canada–Mexico trade agreement will reduce the volatility in our export sector.

Motor Vehicle and Parts Dealers

  • Business is good.
  • The decrease in revenue for December is due to an inability to receive sold trucks in December, postponing the sales until January.
  • December retail sales will be better than November for us, but that is generally the trend in our industry. Fleet will be down. We must get the USCMA passed. And, we need a decision on tariffs with other major trade agreements.
  • We are seeing improved retail activity and traffic we believe due to impeachment implications softening and trade sanctions lifting. The general feeling is that the markets are somewhat more stable as we move forward.

Building Material and Garden Equipment and Supplies Dealers

  • We expect increased revenue in the next six months as some investments we’ve made in 2019 start providing returns. Employment levels will increase to support the new operations. Wage rates should also increase, though we don’t expect to recover these costs through higher selling prices. Uncertainty over the tariff situation and trade policy in general continue to cast doubt on future business conditions.

Clothing and Clothing Accessories

  • We are intentionally decreasing our internet sales as we transition our company from a department store to an off-price model. It is difficult to generate profits from internet sales given the competitive environment.

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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