Dallas Fed reports early signs of slowing in the Texas economy
Since the initial shock of the coronavirus pandemic, the Texas economy has enjoyed two years of rapid and relatively stable gains – at least until now.
Recent surveys from the Dallas Federal Reserve on manufacturing, retail and the service sector across the state display a mixed outlook headed into the end of 2022.
Christopher Slijk, an economist with the Dallas Fed, joined the Texas Standard to talk about what to make of the new data and the Texas economy heading into 2023.
This transcript has been lightly edited for clarity.
Texas Standard: We were talking with you last month upon the release of earlier reports and the general trend seemed to be that Texas was faring better than the rest of the nation. Are you all having any second thoughts as a result of this new batch of surveys?
Christopher Slijk: You know, I think overall the trend is still favorable for Texas, but we are seeing some signs of slowing in the state economy, as we are seeing nationally as well.
Where are you seeing the slowing?
We’re seeing it in a lot of our forward-looking indicators. So our latest surveys for manufacturing actually showed an uptick in production activity, but continued decline in future orders. So that suggests that as manufacturers are continuing to produce, more and more of that is made up of working through their backlogs rather than new orders coming in. And then on the service sector side, we’ve seen revenues continue to grow, but slowed down pretty consistently on a downward trend over the last few months.
It’s my understanding that when we’re talking about the service sector there, it’s a pretty mixed bag overall. I gather that the Fed expects the Texas service sector to grow through the end of the year. What about jobs?
Yeah, on jobs: Our August employment release did show the first sign of slowing in quite a while. We’d been growing at an above-average clip through most of the year up until August, and August we were basically flat. That is just one month of data, but I think that is a sign that we hit sort of a turning point. And going into the rest of the year and early 2023, we’ll probably see growth come closer to our long-term average of around 2%. We will likely stay above that to some extent, but we won’t see this really strong growth that we saw in the first half of this year and in 2021.
For the manufacturing sector, y’all write that there’s been robust employment growth and longer workweeks – and wages are still going up. That would sound like, at least on the surface, things are going pretty well if you work in the manufacturing industry in Texas. And I remember reading a story in The New York Times just the other day that factory jobs are booming like they were in the 1970s in the U.S. Are you seeing that sort of growth in Texas or no?
Yes, I think that even with everything that’s going on, it’s still a very tight labor market, especially in manufacturing. And so I think that manufacturers are really just trying to find where they can and hold on to whoever they can.
You know, there’s a cocktail party question that’s added to some of these surveys, and I guess that they’re included here as well. You’re actually asking about the mood: “how do you feel as a business owner?” What are you hearing when it comes to sentiment?
The sentiment I’d say is slightly pessimistic, and the concerns over the next six months are really split between sort of the ongoing labor shortages.
Obviously, the elevated input costs and cost pressures are a big concern, and then general concern about weakening demand going into next year. And those vary across industries. I think manufacturing costs are a little more front and center.
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