Texas economy

Retail plummets, manufacturing holds steady

The latest snapshot of the Texas economy shows a mixed bag in July: manufacturing and services saw modest growth, while the retail sector saw steep declines.

That’s the result of new surveys from the Federal Reserve Bank of Dallas that point to ongoing supply chain issues, rising prices and hiring challenges across the board.

For manufacturers, the general business activity index, which measures broader business conditions, fell five points to -22.6, according to business executives responding to the Dallas Fed survey.

“The perception of general business conditions has deteriorated for a third straight month,” said Dallas Fed senior economist Emily Kerr. “Hiring continues to be a bright spot. While prices continue to rise faster than usual, there has been some moderation in price growth this month, particularly for commodities. .

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After going through the COVID-19 pandemic and its aftermath, manufacturers are hiring more and more, but that too has been problematic.

“The majority of businesses in Texas are currently trying to hire, and nearly three-quarters say a lack of applicants is a barrier,” Kerr said. “Workers looking for a higher salary than offered is also a major challenge, cited by more than half of the companies. Among companies trying to hire, more than 90% note at least some difficulty, although the degree of difficulty in filling low- or medium-skilled positions has decreased somewhat since last fall. »

Other Takeaways from the Texas Manufacturing Outlook Survey:

• The production index remained unchanged at 3.8, a reading well below average, but still indicative of growth.

• The new orders index remained negative at -9.2, against -7.3 in June, suggesting a further drop in demand.

• The Business Outlook Index posted a fifth consecutive negative reading, but fell from -20.2 to -10.8.

The Dallas Fed reports are based on a series of questions about prices, wages and income restrictions posed to 367 Texas business executives July 12-20 in an anonymous survey.

“Wage demands in the face of recession and extreme inflation exceed our industry’s ability to compensate,” said a chemical manufacturing industry respondent. “Workers start to withdraw and only accept a change for an opportunity for a significant increase in pay relative to job satisfaction or other benefits.

A computer and electronics manufacturing executive noted that supply chain issues are negatively impacting his company’s hiring efforts.

“The labor requirement is limited by our inability to obtain the components needed for production,” the respondent said. “If we could get parts, we would have additional labor requirements.

Central Texas is currently experiencing a manufacturing boom, led by electric carmaker Tesla, which has made Austin its headquarters. The company opened a $1.1 billion manufacturing plant in southeast Travis County, where it began production of its Model Y electric SUVs.

Additionally, tech giant Samsung has chosen a site near Taylor to build a $17 billion semiconductor fab. According to state filings, Samsung plans to build 11 new chip manufacturing facilities in the Austin area over the next two decades, a move that could drive nearly $200 billion in new investment and create more than 10,000 jobs by the tech giant.

The manufacturing expansion in Central Texas comes as the unemployment rate in the Austin metro area stood at 2.9% in June, unchanged from May. Austin added 75,000 jobs, marking 6.4% growth in the 12 months to June, making it the eighth-best performer among the top 50 metropolitan areas, according to a new report from the Austin Chamber of Commerce. ‘Austin.

Texas’ service sector — which includes retail and hospitality-related businesses as well as professional and technical services — has seen a see-saw performance in recent months. The sector makes up nearly 70% of the state’s economy and employs about 8.6 million workers, according to the Dallas Fed.

“Texas’ services sector continued to expand at a moderate pace in July as incomes rose and labor market indicators suggested an acceleration in hiring,” said Christopher Slijk, associate economist at the Fed. Dallas. “Price and wage pressures have eased from the highs of recent months, but remain elevated. The business climate remained pessimistic, as the outlook continued to weaken and uncertainty remains high.

The government revenue index, a key measure of the service sector, held steady at 9.5, with 31% of businesses reporting a monthly increase in revenue. Positive readings indicate expansion, while negative readings indicate contraction. In March 2020, at the start of the pandemic, the index fell to -66, its lowest since 2007.

In the July services sector survey, respondents reported increased employment growth, with a quarter of firms noting an increase in payrolls. Price and wage pressures eased compared to June, but general business activity and the outlook remained negative.

The Dallas Fed survey of the services sector includes a section on retail, focusing on information provided by respondents from retail and wholesale companies. The retail trade survey found that sales deteriorated in July.

The retail sales index fell eight points to -19.4, its weakest reading in two years, while net inventories rose for the first time in six months. Overall, retailer sentiment remained “very negative”, according to the report. Still, expectations for future sales have picked up significantly from last month.

“There are few to no applicants for any position,” said a dealership in the motor vehicle and parts industry. “When we schedule an interview, the no-show rate is over 50 percent.”

Another respondent from the motor vehicle and parts industry said, “Automotive technicians are extremely hard to find, even at lower skill levels. Retail candidates have dropped. ‘interest in college recruits, but they’re not skilled in sales.’

An executive from the construction materials and garden equipment sector gives a more positive assessment: “The employment situation is improving. Sales are slowing down”, the respondent said. “That’s where I’m expanding because it’s easier to get help. I’ve started insulation, fencing, concrete plant and precast concrete businesses in the last three months. “