Snarled supply chains weigh on Texas’ economic growth

Disruptions to supply chains that produce and deliver components and finished goods to businesses are contributing to higher costs and slower economic growth in Texas, according to the Federal Reserve Bank of Dallas.

Those disruptions are the result of a tenacious pandemic that is interrupting production among key global suppliers, such as Vietnam and China, surging demand in the United States and Europe, where widespread vaccinations are reviving consumption, and labor shortages in the trucking and transportation industry that are delaying shipments.

In a recent survey of Texas businesses, nearly half — 41 percent — cited supply chain disruptions as one of the top three factors slowing the growth of revenues. The businesses said they have had to contend with unfilled orders, which continued to mount at the end of the summer, and delivery times that kept getting longer.

Supply chain problems, along with labor shortages that are making it hard to hire, are weighing on economic growth in Texas and boosting prices, according to the Dallas Fed. While job growth remains strong by historical standards, it fell by more than half in August. The state added 39,000 jobs in August, down from a July spike of 93,000.

Supply constraints also have contributed to slower job growth nationally, economists said. U.S. employers added a disappointing 194,000 jobs in September after hiring 366,000 in August and more than 1 million in July. Texas reports September employment statistics Oct. 22.

The difficulties businesses have faced in corralling supplies also are contributing to higher prices, according to the Dallas Fed survey.

About 1 in 3 businesses surveyed said they raised prices in August.

Also contributing to higher prices was rising wages. Again, 1 in 3 businesses said they expected to boost pay as they struggle to attract scarce workers, while 3 of out 4 businesses said that the greatest barrier to hiring more workers was a lack of applicants.

Businesses said they expect wage and price increases to moderate in 2022.

Despite the challenges and uncertainty as the pandemic continues, the Dallas Fed forecasts solid economic growth this year. Economists forecast employment in Texas to grow by nearly 5 percent, or about 570,000 jobs in 2021 and to regain all the jobs lost in the recession during the first quarter of 2022.