Amid coronavirus variants and supply chain issues, Texas’ economy continues to rebound, though the recovery is mixed.
The state’s manufacturing sector saw growth in December, while several sectors in the service sector showed a slower pace of acceleration this month, according to new surveys from the Federal Reserve Bank of Dallas.
The Dallas Fed surveys are designed to take the pulse of leaders in the manufacturing and service sectors. The service sector includes retail, hospitality, professional and technical services, and other businesses.
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Despite some headwinds, the state’s manufacturing sector continues to grow, said Dallas Fed senior business economist Emily Kerr.
“Despite ongoing supply chain and labor challenges, Texas manufacturing expansion continued at an impressive pace this month, although pricing pressures and wages have remained very high,” Kerr said.
The manufacturing sector survey received responses from 339 business executives from December 13 to 21.
Among the discoveries:
- The production index remained relatively stable at 26.7, a figure “well above average and indicative of robust production growth”, according to the report.
- The new orders index fell slightly from 19.6 to 18.1.
- On average, responding companies saw a 7% increase in wages in 2021 and a 7% increase in selling prices. These are significantly higher numbers than for the previous four years, according to the Dallas Fed.
“Texas businesses saw strong price and wage increases in 2021 and also expect high pressures in 2022,” Kerr said. “A majority of companies say they are able to pass on at least some of these cost increases to customers, although only about 11% are able to pass them on entirely. Asked about revenue-limiting factors, business executives primarily cited staff shortages and supply chain disruptions.
Central Texas is currently experiencing a manufacturing boom, led by electric carmaker Tesla, which recently announced it would be moving its headquarters to Austin. The company is building a $1.1 billion manufacturing facility in southeast Travis County. The plant will produce Model Y electric SUVs, as well as the company’s Cybertruck.
Meanwhile, tech giant Samsung recently chose a site near Taylor to build a $17 billion semiconductor fab.
But for many manufacturers in the region, challenges remain.
A respondent from the plastics manufacturing industry said, “It takes three to five new hires to get one new hire that stays. This does not take into account the normal turnover that we see.
Further, the respondent stated, “We are continually struggling to maintain a full complement of staff in some departments. Supply chain constraints persist. We are constantly seeing increased prices or lead times. Our customers are just as frustrated as we are. .”
Uneven pace in the service sector
In Texas’ services sector, which has seen a bumpy performance in recent months, the pace of expansion slowed in December compared to November, according to the survey.
Private service companies make up nearly 70% of the state’s economy and employ about 8.6 million workers, according to the Dallas Fed.
The government revenue index, a key service sector measure, fell five points to 20.4, although it remained above its average of 17.5 for the year. A reading of -66 in March 2020 was the lowest since 2007.
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“Retail activity in Texas continued to recover in December, albeit at a slower pace as measured by the survey’s sales index,” said Christopher Slijk, associate economist at the Fed. Dallas. “Hiring has continued and retailers have noted a marked improvement in their outlook.”
The Dallas Fed survey includes a retail section based solely on information provided by respondents from the retail and wholesale sectors in Texas. Of the respondents, 77% said they expected prices to rise in 2022.
A wholesaler said: “Major suppliers continue to short the orders we place. We always struggle to find available trucks to haul freight, and often we pay a premium to haul our goods over the road. We have moved our export business from Los Angeles to Houston so we can move our orders.”
A construction materials trader added, “Input prices change so fast that we don’t price the product until it’s almost finished. In 45 years, we have never seen anything like it.