Texas economy slows, in manufacturing and services

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The Texas economy is showing signs of slowing, especially in manufacturing and retail.

That’s the gist of two new reports from the Federal Reserve Bank of Dallas, which show declining manufacturing, service-sector and statewide retail activity in August.

Reports point to ongoing supply chain issues, rising prices and employment challenges across all sectors of the economy.

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However, all sectors expressed optimism about a turnaround.

For manufacturers, August’s index of general business activity, which measures broader business conditions, improved 10 points from July but remained in negative territory at -12.9, according to the Dallas Fed investigation.

“Demand continued to decline, with the new orders index posting a third consecutive negative reading, and the perception of general business activity deteriorated,” said Dallas Fed chief economist Emily Kerr. “Hiring continues to be a bright spot, and upward pressure on pricing has eased further as many manufacturers have noted an improvement in supply chain disruption.”

Manufacturers said they are continuing to hire and getting needed supplies is improving.

“We are still having difficulty acquiring certain sizes and types of raw metals,” replied one respondent to the anonymous survey. “Fortunately, we were able to replace them with other materials after recommendations from our customers. Some elastomer manufacturing chemicals are becoming problematic. Some of our suppliers tell us that they cannot accept new orders for the year and they won. I won’t be able to provide anything until the first quarter of 2023.”

Austin’s unemployment rate held steady at 3.1% in July, according to the Texas Workforce Commission. Metro Austin’s unemployment rate remains lower than Texas, at 4.3%, and national rates at 3.8%

“Job creation is actually increasing at a steady rate in our region,” said Melanie Flowers, chair of the board of directors of Workforce Solutions Capital Area. “From 2016 to 2021, jobs grew 16% in Metro Austin, and this change far exceeds the national job growth rate of 1.8%.”

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 over 10,000 jobs by the tech giant.

“Hiring continues to be a bright spot and upward pricing pressure has eased further as many manufacturers have noted improving supply chain disruptions,” Kerr said. “Looking forward, expectations for demand and production six months from now are positive, although uncertainty remains high.

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Customers shop earlier this year at a Macy's Backstage store in Grapevine.  The retail sector in Texas grew at a slower pace in August, according to the Dallas Fed.

Struggles in retail and service sector

Meanwhile, Texas’ service sector – which includes retail and hospitality-related businesses as well as technical services – grew at a slower pace in August, according to the outlook survey. of the service sector in Texas.

“Income growth has moderated and labor market indicators have suggested a weaker pace of hiring,” said Dallas Fed associate economist Christopher Slijk. “Price and wage pressures have eased further from highs at the start of the year. Perceptions of business activity have deteriorated as uncertainty about the outlook has remained elevated.

The service sector makes up nearly 70% of the state’s economy and employs about 8.6 million workers, according to the Dallas Fed.

“The service sector in Texas grew at a slower pace in August as revenue growth moderated and labor market indicators suggested a weaker pace of hiring,” said Slijk. “Price and wage pressures have eased further from highs at the start of the year. Perceptions of business activity have deteriorated as uncertainty about the outlook has remained elevated.

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 August.

“Retailer sentiment remained pessimistic, with the business outlook and general business activity indices in deeply negative territory,” the report said.

Retailers are feeling the pressure on both hiring and increased operating expenses.

“I can’t increase prices as fast as they increase for my business,” said one respondent. “If I did, it would hurt my business. We make less profit now.”

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