COVID-19 continues to cast a shadow over Texas’ manufacturing and service sectors.
This is what emerges from two new surveys from the Federal Reserve Bank of Dallas, which measure the pulse of manufacturing as well as service executives, which include retail, hospitality, professional and technical services. and other businesses.
In Texas’ manufacturing sector, activity increased in September, but business leaders say they are worried that supply chain disruptions linked to the pandemic could hamper growth. A shortage of workers is also a threat to economic recovery, according to the report.
“Solid expansion continued in Texas manufacturing, although the vast majority of companies are noticing supply chain interruptions or delays,” said Emily Kerr, the Fed’s senior business economist of Dallas. “In many cases, these disruptions have been going on for months, and companies have yet to see relief – nearly 90% say the supply issues are the same or worse now than a month ago. “
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At the same time, prices continued to rise rapidly in September, for both raw materials and finished products, she said.
The manufacturing survey received responses from 358 business leaders from September 14-22. According to the survey:
- • The output index rose three points to 24.2, a figure well above average and indicative of solid output growth.
- • The new orders index stood at 9.5, down from 15.6 but still slightly above the series average.
- • Labor market measures point to faster job growth and longer working weeks.
- • The business outlook index turned negative, indicating a slight deterioration in the outlook this month.
“The jobs index was a positive point in this month’s survey, signaling an increase in hiring,” Kerr said. But supply chain issues remain a threat, she said.
“It’s difficult for businesses and it may not be resolved as quickly as previously thought. 60% of companies now say they expect it will be more than six months before their supply chain returns to normal, ”Kerr said.
A respondent from the computer and electronics manufacturing industry said, “We manufacture circuit board assemblies, so we are severely affected by chip shortages. Inventories are high for other parts while we await uncertain deliveries of the remaining parts we need. We and our customers are forced to go to secondary markets to find available parts, which drives up prices across the board. “
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In other cases, said the respondent, “products have to be redesigned to use more available parts, which takes time and resources and causes additional delays. The situation may be improving, but it is very difficult to say it completely. Overall, it’s similar to what we’ve been through for the past four months, and it continues. “
Growth in the service sector is slowing
In the service sector in Texas, which has seen a checkered performance in recent months, the pace of expansion has slowed slightly, according to the Dallas Fed survey.
“Activity in the service sector in Texas slowed in September, with income and employment growth slowing from last month,” said Christopher Slijk, associate economist at the Dallas Fed. “Business sentiment improved slightly, although the uncertainty of the outlook remained high. Wage pressures have eased from record highs last month, while price pressures have remained at historically high levels. “
The government income index, a key measure of the service sector, fell two points to 14.5, its lowest value since February. Positive numbers in the index reflect expansion, while negative numbers reflect contraction. A reading of -66 in March 2020 was the lowest since 2007.
Labor market indicators collapsed and the employment index fell eight points to 9.2. The survey’s price and wage indices remain at historically high levels.
A restaurant industry executive said, “High prices, search for items from four to five different suppliers and chance to find them. Forced to order online with a delivery charge resulting in additional expense for my business. Our energy bill doubled the bill for September; they said because the cost of energy is high. We need help to level the playing field for us. “
A real estate respondent said building material shortages and price increases continue to slow the ability to complete projects.
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“In addition, the current shortage of skilled trades workers is delaying and slowing down project delivery probably more than the lack of materials,” said the leader.
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 Dallas Fed survey includes a section on retail based on information from respondents from the Texas retail and wholesale sectors only.
“Retail activity in Texas has been positive as the survey’s sales index has remained stable, inventories have increased and labor market indicators have improved,” Slijk said.
However, he said, “price pressures have increased, again approaching historic highs.”