Texas economy appears to be on the upswing
DALLAS — About a week ago, Texas released its worst employment report in months, with 27,500 jobs lost in February.
But that contraction may soon become a distant memory because the economy finally seems ready to take off.
In a March survey by the Federal Reserve Bank of Dallas, Texas manufacturing executives reported big gains in output, new orders and shipments. On two key metrics, production and capacity utilization, the Dallas Fed index readings were the highest in the survey’s 17-year history.
The Texas service sector also reported stellar improvement in March. Revenue gainers outnumbered losers by more than 2-to-1, a giant leap from February and well ahead of historical trends. Service companies also had gains in employment, hours worked and capital spending.
On two other metrics, general business activity and company outlook, executives reported the highest monthly marks since the Dallas Fed’s service sector survey began in 2007. Those with improved business activity outnumbered the decliners by nearly 5-to-1.
“We are running at near capacity,” an unnamed machine manufacturing executive told the Dallas Fed. “Business has never been better.”
Said an executive in administrative and support services: “Inactive clients have begun to reach out and reconnect to discuss future hiring plans.”
A maker of computers and electronic products said demand continues to strengthen broadly, lead times are being stretched and many peer companies are raising prices: “I have not seen this dynamic in my 30plus years in the industry,” the executive told the Dallas Fed.
The upbeat reports are not limited to Texas. Nationwide, manufacturers expanded in March at the fastest pace in 37 years, according to a closely watched index from the Institute for Supply Management. Other regional banks in the Fed system also have reported strong improvement in manufacturing and services, said Emily Kerr, a senior business economist at the Dallas Fed.
“There’s just widespread strength, both in measurable activities like production and in expectations and company outlooks,” Kerr said. “There are certainly a lot of reasons to be optimistic about the path forward.”
COVID-19 vaccination rates are climbing fast, and some states, including Texas, have relaxed restrictions on businesses. Financial help has continued to flow from Washington, including $1,400 checks to individuals, unemployment insurance supplements and loans for small businesses.
Consumers are turning more optimistic. The Conference Board’s Consumer Confidence Survey jumped over 19 points in March to its highest level since the pandemic started.
Kerr has been looking for a big shift in the Dallas Fed business surveys since vaccine distribution began. But events kept intervening, from rising coronavirus cases in midwinter to the February storm that shut down Texas power for days.
“Then the spike happened in March,” Kerr said. “It’s quite shocking just how much that outlook index shot up, especially among services.”
Almost half of service sector executives say they expect business activity to improve over the next six months, outnumbering those who expect declines by 8to-1, according to the survey. The index for future business activity increased to a record 42.4, compared with a monthly average of about 13 over the past 14 years.
Strong increases are also projected in hiring and capital spending, “suggesting a surge in service sector growth over the next six months,” the Dallas Fed wrote.
There are still many concerns, starting with the high number of unemployed: nearly 10 million in the U.S. in February, including 970,500 in Texas. The Dallas Fed projects that Texas will add over 700,000 jobs this year, enough to recoup the jobs lost during the pandemic and then some.
For that to happen, Texas’ jobs machine will have to get cranking and stay at it for the rest of the year.
Many executives are already complaining about the difficulty of finding new hires, and they often blame federal relief programs.
“We are in desperate need of employees,” an administrative services executive told the Dallas Fed. “If the government is going to pay people to stay at home, they will stay at home.”
That’s not what bothers Andy Ellard, co-owner and general manager of Manda Machine Co. His Dallas business makes machine parts for aerospace companies and defense contractors, and he says it’s getting tougher to line up raw materials such as steel and aluminum.
Prices are rising and inventories are falling, continuing the supply chain problems that have disrupted manufacturers throughout the pandemic.
He’s also worried about the cash flow squeeze from being shut down for a week during the February storm. But Ellard won’t criticize government support, in part because the smallbusiness loan program and tax credits were essential to keeping his 16-employee workforce.
“Everybody stuck with us, and we stuck with everybody,” Ellard said.
He said he’s participated in the Dallas Fed surveys for 12 years, and he reported that growth was resuming in March, with more purchase orders. That followed a 50 percent drop in business last summer and a string of uneven months, including a rough run from December through February.
He recently talked with three customers about creating some new products, which will be exciting if the work comes in. While he’s thrilled to have the conversations, he made it clear that business isn’t booming yet.
“We’re starting to see the light at the end of the tunnel,” Ellard said. “But I’m not ready to say this is the best it’s been in 30 years, I promise you.”