Manufacturing, service sectors still growing despite challenges
Despite ongoing challenges created by the coronavirus pandemic and supply chain issues, the Texas economy continues to push ahead, with the state’s manufacturing and service sectors both seeing growth in November.
Those are the findings from Federal Reserve Bank of Dallas surveys that take the pulse of executives in the manufacturing and service sectors. The service sector includes retail, hospitality, professional and technical services and other businesses.
In the Texas manufacturing sector, respondents to the anonymous survey said rising costs and labor shortages continue to be a problem.
“The pace of expansion in the Texas manufacturing sector accelerated, despite widespread supply chain disruptions and difficulty finding workers,” said Emily Kerr, Dallas Fed senior business economist. “Cost pressures escalated further, with stronger increases seen in both raw materials prices and wages.”
A majority of manufacturers said they expect supply disruptions to persist for more than six months, and more than half of the firms said they have raised wages at least 4 percent over the past year.
The manufacturing survey received responses from 360 business executives from Nov. 15-23. Among the findings:
• The production index rose three points to 24.2, a reading well above average and indicative of solid output growth.
• The new orders index came in at 9.5, down from 15.6 but still slightly above the series average.
• Among firms noting supply chain disruptions, 52 percent said they have worsened over the past month.
• Just over half of the firms were currently trying to fill entry-level positions. Mid-skill employees were also hard to find, with 52 percent saying it was very difficult.
A respondent from the plas
tics manufacturing industry said: “Retention is the new norm. Just as we hire one, another leaves. To help alleviate this problem, we’ve taken steps to help stabilize our workforce through increased starting wages and other incentives. Only time will tell if these adjustments make an impact.”
Furthermore, the respondent said, “As they have all year, supply chain issues continue to drive price increases, delivery issues and late orders. Many suppliers cite that things will recover in late January. We’ll have to wait and see what happens.”
Ray Perryman, an economist based in Waco, said it will take months for the current issues to be resolved.
“Supply chain issues are occurring all over the country — and the world for that matter — and Central Texas is no exception,” Perryman said. “In essence, the $100 trillion global economy was shut down last spring and restarting it has not been easy. With shuttering of manufacturing facilities and transportation interruptions during the pandemic and other logistical challenges, there are shortages in numerous items.”
In addition, Perryman said, there are labor shortages that are slowing delivery times to retail establishments.
“Companies are currently working 24/7 to address the problem, but it is likely we will continue to see some issues, at least with some items, that continue into the holidays,” he said.
Service sector accelerates
In the Texas service sector, which has experienced an upand-down performance in recent months, the pace of expansion jumped, according to the Dallas Fed’s survey.
Private service-providing companies account for nearly 70 percent of the state’s economy and employ about 8.6 million workers, according to the Dallas Fed.
“Texas service sector activity accelerated in November, with revenue growth increasing sharply to a seven-month high,” said Christopher Slijk, Dallas Fed associate economist. “Price and wage pressures rose to all-time highs in the survey’s 14-year history. Sentiment on current and future business conditions suggest increased optimism compared with October.”
The state revenue index, a key measure of the service sector, increased six points to 25.4, its best reading since April. Positive numbers in the index reflect expansion, while negative numbers reflect contraction. A March 2020 reading of -66 was the lowest since 2007.
Labor market indicators remained positive, and the parttime employment index rose to its highest level since 2007.
The Dallas Fed survey includes a retail section that is based on information from respondents in the Texas retail and wholesale sectors only.
“Texas retail activity rebounded, as the survey’s sales index rose to its highest reading in 17 months,” Slijk said. “Hiring picked up, and retailer sentiment surrounding current business conditions improved. Price and wage pressures surged to record highs in November.”
One wholesaler said: “Companywide, we will raise everyone’s pay by 4 to 5 percent before the end of this year. We will also award a year-end bonus.”
A motor vehicle and parts dealer added: “Significantly raising the hourly pay to hire low- and mid-skill positions requires a general increase in all of the existing employees with similar compensation; otherwise, you lose these people due to lack of fairness in pay scales.”