Service industry dropped last month
Some executives in Texas’ service industry are cutting expenses and pulling back on capital expenditures as COVID-19 cases rise, a monthly survey by the Federal Reserve Bank of Dallas indicates.
“Our industry needs assistance from the federal government,” an executive at an accommodation business said. “Until a stimulus is passed, we will struggle to meet our debt, and we will not be able to hire back our laid-off workers.”
The revenue index, a key measure of the service sector’s health, dropped to -0.7 in November from 7.1 the month prior.
Another metric gauging business activity registered its first negative reading since July.
“Service sector activity flattened out in November, with revenue and labor market indicators suggesting little change
compared with last month,” said Christopher Slijk, an associate economist at the Dallas Fed. “Firms were less optimistic in their assessment of business conditions, and outlooks were roughly unchanged.”
Retail sales also dropped after two consecutive months of growth.
“Texas retailers saw a decline in November activity, with retail sales falling and employment indicators remaining negative,” Slijk said. “Outlooks plateaued, while perceived business conditions worsened compared with October.”
The service industry represents nearly 70 percent of the state’s economy and employs about 8.6 million workers, Dallas Fed says. While some business leaders herald the development of a COVID-19 vaccine, others are concerned about a spike in cases and potential lockdowns.
“As a seasonal business, the future restrictions look like they will increase — more government regulations,” an entertainment executive told the Dallas Fed. “Even with a vaccine, it is going to take a very long time for business to return to normal.”
Nearly 68 percent of firms said they’re cutting costs in areas such as maintenance and advertising in response to spiking COVID-19 cases, and over half said they are reducing or delaying capital expenditures.
Just over 20 percent said they are reducing workers’ hours, and 18.3 percent said they are laying off employees.
“As a result of COVID-19, we expect a permanent effect of work from home and anticipate lowering the amount of office space we need,” an insurance executive said.
“What are we doing in response to COVID-19? Making capital investments in PPE (personal protective equipment), moving employees to work at home or rearranging office layouts, adding cleaning personnel, implementing systems to comply with local directives, trying to assist our tenants in getting assistance for their businesses and much more,” a real estate executive told the Dallas Fed.
Among business leaders who have watched revenue decline, 38.5 percent expect it to take more than a year for sales to bounce back to prepandemic levels. Just over 28 percent anticipate a rebound within six months or sooner, and nearly 30 percent between seven to 12 months.
More than half said they have fewer employees now than in February, and another 36.5 percent said there hadn’t been any change.
About 20 percent said they don’t anticipate head counts rebounding to preCOVID levels, while others reported difficulties with finding workers.