Texas economy

Texas economy sees mixed recovery as service sector growth slows

As Texas’ economy continues to recover amid the grueling coronavirus pandemic, there are signs that the state’s service sector still faces challenges.

This is the result of a new survey from the Federal Reserve Bank of Dallas indicating that the performance of the services sector fell considerably in January.

However, manufacturing activity in the state continued to grow, albeit at a slower pace, according to business executives responding to a similar Dallas Fed survey of the manufacturing sector.

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, with the pace of expansion slowing in January , according to the latest reading from the Dallas Fed. .

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Private service companies make up nearly 70% of the state’s economy and employ about 8.6 million workers, according to the Dallas Fed.

“Growth in service-sector activity in Texas slowed sharply in January, with income and labor force indicators slowing from December,” said Dallas Fed associate economist Christopher Slijk. “Pricing pressures have increased from the already high levels of last month, and wage pressures have reached a record high for the survey. The uncertainty of the outlook has increased sharply.

The government revenue index, a key measure of the services sector, fell 18 points to 2.8, its lowest level since the start of 2021. A reading of minus 66 in March 2020 was the lowest since 2007.

Positive readings indicate expansion, while negative readings indicate contraction.

Currently, labor market indicators suggest slowing job growth and longer average hours worked by employees, according to the survey.

“Sales volume is low,” said an anonymous survey respondent, who works for a financial company. “Employees are leaving for supposedly better salaries. It’s hard to hire qualified replacements.”

The Dallas Fed Service Sector Survey includes a retail section based exclusively on information provided by respondents from retail and wholesale companies.

“Retail activity in Texas plunged in January, with the survey’s sales index falling to its lowest level in three months,” Slijk said. “Employment grew at a slower pace and the outlook for retailers was pessimistic.”

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

Additionally, tech giant Samsung recently chose a site near Taylor to build a $17 billion semiconductor fab.

Among the takeaways from the Dallas Fed’s survey of statewide manufacturers:

• The production index, a key barometer of manufacturing activity, stood at 16.6. This marks an eight-month low, but still indicates above-average growth.

• The new orders index held steady at 20, suggesting continued high demand growth.

• Labor market measures pointed to robust employment growth and longer work weeks.

• The general business activity index remained positive but lost six points to 2.0.

A new road sign on Texas 130 directs drivers to the new Tesla Road, which was previously known as Harold Green Road.  The Tesla Gigafactory, a massive $1.1 billion auto manufacturing plant that began making Model Y vehicles late last year.  File photo of a statesman

“Texas manufacturing expansion continued, but at a slower pace this month. Demand and job growth remained elevated, as did wages and prices,” said Dallas Fed Chief Economist Emily Kerr “The outlook has improved marginally, with the index trading slightly above zero, although uncertainty has intensified amid the omicron surge.”

For many manufacturers in the state, challenges remain.

“We are at full capacity, in terms of staff and equipment,” said a respondent to the metal fabrication industry survey. “Retirements (two out of 31 employees, with no replacements currently available) and very few new hires have affected productivity.”

A transportation equipment manufacturing executive added, “COVID was a plus and a minus. It drove market demand for our products, but supply and staffing issues increased our costs and inhibited our ability to meet demand.”

Meanwhile, the Dallas Fed also released a new report this week predicting job growth in the state will increase 3% in 2022. Last year, employment climbed 5.1% , after falling 4.5% in 2020 when the initial blow of the coronavirus pandemic first hit the economy.

Based on forecasts for this year, 389,300 jobs will be added in the state and employment in December 2022 will total 13.4 million.

The Dallas Fed said statewide job growth slowed in December amid rising COVID-19 cases, but is on track to pick up in the first quarter of this year. year, as infections with the omicron variant appear to be peaking.

In the Austin area, the unemployment rate recently fell below 3% for the first time since the start of the coronavirus pandemic, reaching 2.9% in December as the booming local economy continued to counter the damper of the fast-spreading omicron variant of the virus.

But the latest local figures included signs that omicron could have a negative impact on some business activity in the region – with jobs in the leisure and hospitality sector down slightly for the first time in five months and the slightly reduced workforce. overall compared to November.

Overall, however, economists called the unemployment rate below 3% the latest indication that the Austin area is booming and that local employers in many industries are hiring new workers as fast as they can. can find them.

“Austin is still the hottest job market in the country, perhaps of any major metropolitan area,” said Peter Rodriguez, dean of Rice University’s Jones Graduate School of Business. “It’s hard to imagine a major metro market with the ability to run hotter than Austin right now.”

State Reporter Bob Sechler contributed to this report.