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Texas Service Sector Outlook Survey - Federal Reserve Bank of Dallas November 27, 2012

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Texas Service Sector Outlook Survey - Federal Reserve Bank of Dallas November 27, 2012 Powered By Docstoc
					November 27, 2012

TEXAS SERVICE SECTOR ACTIVITY EXPANDS BUT AT A SLOWER PACE
Texas service sector activity expanded in November, according to business executives responding to the Texas Service Sector
Outlook Survey. The revenue index, a key measure of state service sector conditions, dipped from 13.5 to 11.1, suggesting slightly
slower growth.
Labor market indicators reflected some employment growth, but no change in workweeks. The employment index edged up from
7.5 to 8.2, and the hours worked index was 0.7, suggesting little change in workweek length.
Perceptions of broader economic conditions were slightly less optimistic in November. The general business activity index edged
down from 9.3 to 7.1. Similarly, the company outlook index fell slightly from 7.2 to 5.8, with 22 percent of respondents reporting
that their outlook improved from last month and 16 percent noting they worsened.
Price pressures eased and wage growth slowed in November. The selling prices index fell from 8.3 to 6. The wages and benefits
index moved down from 14.5 to 10.1.
Respondents were markedly less optimistic about expectations regarding future business conditions than last month. The index of
future general business activity moved down 6 points to 6.9, and the index of future company outlook fell sharply to 1.4, its lowest
reading since August 2011. Indexes of future service sector activity, such as future revenue and employment, fell in November but
remained in solid positive territory.


               RETAIL SALES GROWTH SLOWS FURTHER

Retail sales increased at a slower pace in November, according to business executives responding to the Texas Retail Outlook
Survey. The sales index fell from 11.3 to 6.8, its lowest reading since July. Inventories rose.
Labor market indicators reflected more hiring but no change in workweeks. The employment index rose from 3.5 to 6.7 in
November. The hours worked index was 0.7, suggesting little change in workweek length.
Respondents were less optimistic about the broader economy than last month. The general business activity index fell from 13.2 to
7.8, its lowest reading in four months. The company outlook index also hit a four-month low, moving down from 8.5 to 3.2 in
November. Twenty-four percent of respondents noted an improved company outlook over the prior month, compared with 21
percent who reported that their outlook had worsened.
Retail prices spiked and wages rose faster in November. The selling prices index jumped 14 points to 20.2. The wages and benefits
index rose from 5.7 to 8.6, although the great majority of respondents noted no change in labor costs.
Perceptions of future broader economic conditions were notably less optimistic. The future general business activity index fell 12
points to 10.2, while the index of future company outlook moved down 11 points to 12.9. Indexes of future retail sector activity
remained in positive territory in November with the exception of part-time employment.
The Texas Retail Outlook Survey (TROS) is a component of the TSSOS that uses information only from respondents
in the retail and wholesale sectors.
The Dallas Fed conducts the Texas Service Sector Outlook Survey monthly to obtain a timely assessment of the state’s service
sector activity. Data were collected Nov. 13–20, and 248 Texas business executives responded to the survey. 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.
Next release: January 2, 2013




Federal Reserve Bank of Dallas                   Texas Service Sector Outlook Survey                                        1
TEXAS SERVICE SECTOR OUTLOOK SURVEY
Business Indicators Relating to Facilities and Products in Texas
Current (versus previous month)
                                                                                                                        %                %               %
                                                    Nov          Oct                      Indicator   Trend**        Reporting       Reporting        Reporting
Indicator                                          Index        Index       Change        Direction*  (months)       Increase        No Change        Decrease
Revenue                                              11.1         13.5         -2.4        Increasing     37              31.9             47.3            20.8
Employment                                            8.2          7.5        +0.7         Increasing     33              19.6             69.0            11.4
Part-time employment                                  4.2          4.4         -0.2        Increasing     15              11.4             81.4              7.2
Hours worked                                           0.7          4.3         -3.6       Increasing        21              8.0            84.7               7.3
Wages and benefits                                    10.1         14.5         -4.4       Increasing        40            16.7             76.7               6.6
Input prices                                          28.4         31.7         -3.3       Increasing        43            30.2             68.0               1.8
Selling prices                                         6.0          8.3         -2.3       Increasing        23            13.2             79.6               7.2
Capital expenditures                                   6.9         13.4         -6.5       Increasing        39            17.7             71.6              10.8
General Business Conditions
Current (versus previous month)
                                                                                                                        %                %               %
                                                    Nov          Oct                      Indicator  Trend**         Reporting       Reporting        Reporting
Indicator                                          Index        Index       Change        Direction* (months)        Improved        No Change        Worsened
Company outlook                                       5.8          7.2         -1.4        Improving     15               21.6             62.6            15.8
General business activity                             7.1          9.3         -2.2        Improving     13               22.3             62.5            15.2

Business Indicators Relating to Facilities and Products in Texas
Future (six months ahead)
                                                                                                                        %                %               %
                                                    Nov          Oct                      Indicator   Trend**        Reporting       Reporting        Reporting
Indicator                                          Index        Index       Change        Direction*  (months)       Increase        No Change        Decrease
Revenue                                              28.4         36.7         -8.3        Increasing     45              47.3             33.8            18.9
Employment                                           21.6         21.9         -0.3        Increasing     44              35.8             50.0            14.2
Part-time employment                                  8.0         10.3         -2.3        Increasing      5              17.1             73.8              9.1
Hours worked                                           1.0          8.0         -7.0       Increasing        39            10.1             80.8               9.1
Wages and benefits                                    33.3         40.4         -7.1       Increasing        71            40.2             52.9               6.9
Input prices                                          48.7         54.3         -5.6       Increasing        71            53.2             42.3               4.5
Selling prices                                        24.0         26.9         -2.9       Increasing        40            34.2             55.6              10.2
Capital expenditures                                  17.1         23.5         -6.4       Increasing        44            30.7             55.8              13.6
General Business Conditions
Future (six months ahead)
                                                                                                                        %                %               %
                                                    Nov          Oct                      Indicator  Trend**         Reporting       Reporting        Reporting
Indicator                                          Index        Index       Change        Direction* (months)        Improved        No Change        Worsened
Company outlook                                       1.4         13.0        -11.6        Improving     15               27.3             46.9            25.9
General business activity                             6.9         13.2         -6.3        Improving     14               26.9             53.1            20.0
*Indicator direction refers to this month's index. If index is positive (negative), indicator is increasing (decreasing) or improving (worsening). If zero,
indicator is unchanged.
**Number of months moving in current direction.
Data have been seasonally adjusted as necessary.




Federal Reserve Bank of Dallas                               Texas Service Sector Outlook Survey                                                        2
TEXAS RETAIL OUTLOOK SURVEY
Business Indicators Relating to Facilities and Products in Texas, Retail
Current (versus previous month)
                                                                                                                        %                %               %
                                                    Nov          Oct                      Indicator     Trend**      Reporting       Reporting        Reporting
Indicator                                          Index        Index       Change        Direction*    (months)     Increase        No Change        Decrease
Retail Activity in Texas
Sales                                                  6.8         11.3         -4.5       Increasing         4            32.1             42.5              25.3
Employment                                             6.7          3.5        +3.2        Increasing        16            14.3             78.1               7.6
Part-time employment                                   1.5         -2.9        +4.4        Increasing         1             9.2             83.1               7.7
Hours worked                                           0.7          4.4         -3.7       Increasing         5            11.9             76.9              11.2
Wages and benefits                                     8.6          5.7         +2.9       Increasing        27            14.8             79.0               6.2
Input prices                                          25.5         16.8        +8.7        Increasing        28            29.7             66.1               4.2
Selling prices                                        20.2          6.2       +14.0        Increasing         4            24.6             71.0               4.4
Capital expenditures                                  -1.5         12.8        -14.3       Decreasing         1            13.0             72.5              14.5
Inventories                                           14.7         18.6         -3.9       Increasing        17            31.4             51.9              16.7
Companywide Retail Activity
Sales                                                 10.5         13.8        -3.3        Increasing        18            32.8             44.9              22.3
Internet sales                                         8.4          8.0        +0.4        Increasing         4            16.7             75.0               8.3
Catalog sales                                        -10.9         -2.3        -8.6        Decreasing         2             4.3             80.4              15.2
General Business Conditions, Retail
Current (versus previous month)
                                                                                                                        %                %               %
                                                    Nov          Oct                      Indicator  Trend**         Reporting       Reporting        Reporting
Indicator                                          Index        Index       Change        Direction* (months)        Improved        No Change        Worsened
Company outlook                                       3.2          8.5         -5.3        Improving      4               23.7             55.8            20.5
General business activity                             7.8         13.2         -5.4        Improving      4               28.7             50.4            20.9

Business Indicators Relating to Facilities and Products in Texas, Retail
Future (six months ahead)
                                                                                                                        %                %               %
                                                    Nov          Oct                      Indicator     Trend**      Reporting       Reporting        Reporting
Indicator                                          Index        Index       Change        Direction*    (months)     Increase        No Change        Decrease
Retail Activity in Texas
Sales                                                 42.1         45.3        -3.2        Increasing        45            54.3             33.5              12.2
Employment                                            18.8         21.6        -2.8        Increasing        35            31.3             56.3              12.5
Part-time employment                                  -1.5          2.8        -4.3        Decreasing         1             8.3             81.9               9.8
Hours worked                                           8.4          5.8        +2.6        Increasing        38            17.3             73.8               8.9
Wages and benefits                                    29.7         33.2        -3.5        Increasing        47            38.4             52.9               8.7
Input prices                                          52.3         40.0       +12.3        Increasing        43            56.9             38.5               4.6
Selling prices                                        38.5         32.3        +6.2        Increasing        43            46.2             46.2               7.7
Capital expenditures                                  13.8          8.1        +5.7        Increasing        20            29.2             55.4              15.4
Inventories                                           13.1         19.4        -6.3        Increasing        36            29.6             53.9              16.5
Companywide Retail Activity
Sales                                                 42.1         39.5        +2.6        Increasing        44            52.4             37.3              10.3
Internet sales                                        31.1         21.8        +9.3        Increasing        44            33.3             64.4               2.2
Catalog sales                                         13.9         20.0         -6.1       Increasing         2            18.6             76.7               4.7
General Business Conditions, Retail
Future (six months ahead)
                                                                                                                        %                %               %
                                                    Nov          Oct                      Indicator  Trend**         Reporting       Reporting        Reporting
Indicator                                          Index        Index       Change        Direction* (months)        Improved        No Change        Worsened
Company outlook                                      12.9         24.3        -11.4        Improving     43               31.6             49.6            18.7
General business activity                            10.2         22.0        -11.8        Improving     14               29.4             51.4            19.2
*Indicator direction refers to this month's index. If index is positive (negative), indicator is increasing (decreasing) or improving (worsening). If zero,
indicator is unchanged.
**Number of months moving in current direction.
Data have been seasonally adjusted as necessary.




Federal Reserve Bank of Dallas                               Texas Service Sector Outlook Survey                                                        3
Federal Reserve Bank of Dallas   Texas Service Sector Outlook Survey   4
COMMENTS FROM SURVEY RESPONDENTS
These comments are from respondents' completed surveys and have been edited for publication.

Pipeline Transportation
   The major change for our company during this period is a strategic redirection away from more volatile businesses toward
   more stable businesses. Therefore, overall revenue declines, but profitability increases. We are also increasing capital
   spending on the more stable business lines.

Support Activities for Transportation
   Declining international trade continues to depress business activity.

Publishing Industries (except Internet)
   The results of the election—nationally and statewide—do not create any cause for caution. However, what the Congress
   does with the fiscal cliff creates some reservations right now.

Credit Intermediation and Related Activities
   Regulation burden will hamper growth. We will be spending valuable resources and much personnel time to attempt to
   understand and implement the regulations. This will take away from being able to serve our customers. Also, the additional
   lending regulations will discourage customers from borrowing.
   Banking regulatory demands are overwhelming.
   We see slow improvement in the local economy. Deposit volume is down, improving loan-to-deposit ratios. Loan and
   investment return rates continue to slowly decline, squeezing profit margins.

Securities, Commodity Contracts, and Other Financial Investments and Related Activities
   We are getting slower at the moment. The outlook is now turning negative.
   The fall harvest is below average, and agricultural income is down. Local employment remains strong, but levels are
   flattening.

Funds, Trusts, and Other Financial Vehicles
   Company revenues are highly dependent on security markets, which drive cost decisions. Although little change was seen
   between October and November, we anticipate better months ahead, although this does not necessarily lead to more hiring.
   Most of the cost increases are from normal compensation increases, our largest cost component, as well as inflation-indexed
   cost increases in purchased services. We have positioned ourselves in this quarter to grow in a cautious way over the next
   several years.

Real Estate
   We see signs of slowing down. We are concerned about Dodd–Frank impacts and new health care reform.
   We're seeing an increase in business postelection, possibly due to clients wanting to make real estate investment decisions
   prior to Jan. 1 and the looming fiscal cliff. We expect a slowdown in the first half of 2013 due to the fiscal cliff. Until there is
   clear direction that deficit spending and the debt will be addressed without massive tax increases, we see the economy
   remaining sluggish due to consumer caution.

Rental and Leasing Services
   We are seeing some definite year-end capital expenditures to capture the last business tax advantages this generation will
   see. Then we think the economy will come to an abrupt halt as we enter another severe long-term recession.

Professional, Scientific and Technical Services
   The fiscal cliff and unfriendly business climate of the current administration causes us great concern.
   It's hard to plan when you have no idea what the federal government is going to do about its financial issues, taxes, etc.
   We are not optimistic about the business climate after the U.S. election. We also continue to be very concerned about
   economic issues globally. Uncertainty in the current environment is causing our clients, and target clients, to table deals that
   were scheduled to take place, thus impacting our short- and medium-term plans for expansion, staffing, etc. We hope the
   environment changes around March 2013 but currently are not that optimistic about it. We will prepare for the worst, and
   hope things are better.
   We continue to see increasing real estate activity in both residential and commercial markets, especially those in North
   Texas, so the outlook for the rest of this year is good. Commercial real estate activity, however, appears to be driven by
   capital gains considerations and the anticipation of an increase in federal income taxes on all levels of income next year.
   Residential activity locally appears to be the result of an increase in job formation, pent-up demand and a decrease in
   inventory. We believe there may be a state-mandated increase in the rates we charge for our product, which will result in an
   increase of revenues next year, if and only if, business levels of activity do not fall off as a result of fiscal policy changes.
   We are concerned about rising costs for small business.

Federal Reserve Bank of Dallas                    Texas Service Sector Outlook Survey                                          5
   The future depends on the government managing the economy wisely. We can't predict wages, expenses and capital
   improvements right now.
   Now that the election is over, we believe that business will improve if we can get beyond the fiscal cliff.
   Despite the national fiscal uncertainty, we remain bullish on prospects for growth in the next 6–12 months. This, of course, is
   subject to rapid change as the White House and Congress reveal whether or not they can work to a rational, compromising
   resolution to their past stalemate.
   Design and construction activity within the North Texas region is steadily increasing, requiring addition of employees. Much
   of the capital expenditure is associated with replacement of outdated equipment and computers.

Management of Companies and Enterprises
   Overregulation is hurting our business and driving up our expenses, which are going to drive up the costs to our customers.
   Someone needs to insert some common sense on regulations.

Administrative and Support Services
   Any business that can be moved offshore will be moved offshore. The federal government has created a very hostile
   environment for employers. The risks associated with having even one employee outweigh any potential returns.
   Federal regulation has increased, and we expect that to continue.

Ambulatory Health Care Services
   Health care service providers are exposed to the federal government focus on deficit reduction and health reform
   implementation. Significant but unknown factors are expected to be coming through in the next 12 months at a rapid pace
   for small and medium business service health care providers. This uncertainty is causing a holdback on all capital and
   business growth investments. Once the federal government and Congress resolve the deficit and health care reform
   initiatives, service providers will be able to focus on regrouping to align with the changes in business models.
   We see about a 10 percent drop in business occurring around the time of election. It was more than seasonally expected.
   We are 80 percent Medicare and 10 percent Medicaid. We are certain that there will be payment cuts coming through as a
   result of fiscal cliff negotiations.

Social Assistance
   We have seen our retail store sales (same stores) decline significantly in the last six weeks. We are reviewing our operations
   to determine if it is an internal problem or external.

Food Services and Drinking Places
   We will have to assess the impact of providing insurance for our employees and make cuts accordingly. The restaurant
   business has low margins; adding the cost of insurance will wipe out these margins. Hence, we will have to cut down our
   staff from 75 to 49, which also means we will have to cut down on the business itself. We are hoping there might be some
   relief for restaurants with over 50 employees. We need it.
   We are seeing a slow but steady increase in our trend line as we move into the holiday season. It is a little too early to be
   certain, but it looks like we may have turned a corner and will have the first holiday season showing incremental growth
   above our price increases in the last three years. We have not increased enough yet to make a difference in our number of
   employees. We are more likely to increase hours than add employees, which will be our last choice given the expense of
   adding employees. Our benefit increase that will be effective in January was less than we anticipated. It was around 2
   percent for the medical insurance. We expect cost of goods to increase over the six-month horizon, and we will increase
   prices around mid-December to compensate.
   We have over 50 employees, and we are going to put most onto part time. We can't afford a $2,500 per employee penalty,
   and we surely can't afford the insurance. The future looks grim.
   We are in a growth stage right now, currently adding new restaurants, so will continue to have an increase in spending,
   revenues and personnel for the foreseeable future.

Merchant Wholesalers, Durable Goods
   We are still very concerned about water supply. Mexico is not holding up to the water agreement as they did before when
   the water supply is low.
   Our business is improving, but we really can't enjoy it much due to concerns and uncertainties about what tax policy is going
   to be, how health care changes will affect our finances, how inflation will put a lid on future prospects and what the effect of
   inflation may be on an already weak dollar. We live in uncertain times, yet the American public seems content with allowing
   public policy to remain status quo.
   Our company was hit with a major medical insurance increase of 50 percent for 2013. We are forced to pass on 100 percent
   of the increase to employees. In addition, our company will no longer match 401K contributions or offer profit sharing, and
   the company will no longer pay any portion of dependent medical care for employees.
   Increase in revenues for November relates to our customers responding to the cleanup after Hurricane Sandy. There is
   pessimism after the election and concern about the impact the current administration will have on business activity.
   Prior to the election, the general feeling about business opportunities among our glazing contractor customers was on a
Federal Reserve Bank of Dallas                  Texas Service Sector Outlook Survey                                       6
   positive track. There was optimism about the improvement in the Texas regional and national economies. The election result
   neutralized these feelings. Next week, next month, next year(s) may be better … it’s a wild guess at this time.

Motor Vehicle and Parts Dealers
   Our business is still a bit fragile until Washington figures out what to do, but it is going well based on faith and market
   stimuli.
   There are too many unknowns, too much regulation.
   We are extremely worried about the fiscal cliff, the national debt and the unforeseen future costs associated with health
   care. We will be very cautious about any expense that does not lead directly to income.

Building Material and Garden Equipment and Supplies Dealers
   October 2012 was our busiest month ever (56 years).

General Merchandise Stores
   The uncertainty of U.S. fiscal policy continues to inhibit consumer demand.


Questions regarding the Texas Service Sector Outlook Survey can be addressed to Jesus Cañas at jesus.canas@dal.frb.org.
The Texas Service Sector Outlook Survey can be found online at www.dallasfed.org/microsites/research/surveys/tssos/.




Federal Reserve Bank of Dallas                  Texas Service Sector Outlook Survey                                       7

				
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Description: Texas Service Sector Outlook Survey - Federal Reserve Bank of Dallas November 27, 2012. TEXAS SERVICE SECTOR ACTIVITY EXPANDS BUT AT A SLOWER PACE Texas service sector activity expanded in November, according to business executives responding to the Texas Service Sector Outlook Survey. The revenue index, a key measure of state service sector conditions, dipped from 13.5 to 11.1, suggesting slightly slower growth. Labor market indicators reflected some employment growth, but no change in workweeks. The employment index edged up from 7.5 to 8.2, and the hours worked index was 0.7, suggesting little change in workweek length. Perceptions of broader economic conditions were slightly less optimistic in November. The general business activity index edged down from 9.3 to 7.1. Similarly, the company outlook index fell slightly from 7.2 to 5.8, with 22 percent of respondents reporting that their outlook improved from last month and 16 percent noting they worsened. Price pressures eased and wage growth slowedin November. The selling prices index fell from 8.3 to 6. The wages and benefits index moved down from 14.5 to 10.1. Respondents were markedly less optimistic about expectations regarding future business conditions than last month. The index of future general business activity moved down 6 points to 6.9, and the index of future company outlook fell sharply to 1.4, its lowest reading since August 2011. Indexes of future service sector activity, such as future revenue and employment, fell in November but remained in solid positive territory.