Texas economy still struggling

By Alex Wukman

A recent report from the Federal Reserve Bank of Dallas found that Texas service sector activity continued to reflect expansion in May.
The report surveyed business executives throughout the state and found that the revenue index, a measure of service sector conditions, dropped from 10.6 in April to 5.8 in May.

Labor market indicators were mixed in May. Although the employment index remained positive, it edged down from 6.3 to 4.5, indicating slower employment growth. The hours worked index fell almost 4 points into negative territory to a reading of -1.3, suggesting shorter workweeks.

Part of the reason for shorter weeks comes from employer anxiety about recent U.S. Department of Labor changes to the federal Fair Labor Standards Act's (FLSA) overtime exemptions. On May 18, the Department of Labor updated regulations to more than double the salary threshold for claiming exemption from overtime, from $23,366 annually to $47,476.

Multiple executives across various fields told the banks that the new overtime regulations will "have a siginificant negative impact" on business. A professional, scientific and technical services executive described the new regulations as "not a positive at all."

Perceptions of broader economic conditions worsened in May. The general business activity index was negative for a fifth consecutive month, declining from -3.7 in April to -7.1 in May. The company outlook index retreated 10 points into negative territory to a reading of -2.9, with 13 percent of respondents reporting that their outlook improved from last month and 16 percent noting that it worsened.

A pessimistic outlook was particularly present in Houston industuries related to housing and the provision of home services. COntinual declines in oil prices, West Texas Intermediate closed at $50.36 on Wednesday, has plunged Houston's economy into a regional recession.

The Houston metro area has a 4.8 percent unemployment rate, according to the Texas Workforce Commission. Halliburton and Schlumberger, two large scale employers, have shed 33,000 and 40,000 jobs respectively.

The loss of jobs has led to a decline in real estate sales, with Miami-based Lennar Corp., the biggest builder in Houston, reporting a 3.5 percent decline in new home orders for the first quarter of 2016.

One rental company reported to the Dallas Fed that their returns dropped from a year-to-year net gain of 7.5 percent for the first quarter to a net loss of 2 percent year to date in April.
"That is what is going on out here in the real world, dang little! We are a 56-year-old family-owned company," the rental executive said. "This economy is in and headed deeper into the tank faster than all the talking heads can spin their silly data and metrics to portray the story most beneficial to whatever lines their pockets best today."

For telecommunication providers, which rely on customer density to offset the cost of infrastructure installation, the housing decline has become a threat to their business model.

"Home, apartment and business vacancies are rising, while the cost to provide services continues to increase," one telecommunications executive told the Dallas bank. "The FCC [Federal Communciations Commission] continues to ignore the rising cost to provide customers programming/video."

Price and wage pressures eased this month. The selling prices index fell slightly from 6.5 to 4.4. The wages and benefits index dipped from 16.9 to 14.7, although the majority of firms continued to note no change in compensation costs.

Respondents’ expectations regarding future business conditions reflected less optimism in May. The index of future general business activity inched down from 2.3 to 1.3. The index of future company outlook fell from 14.6 to 6.3. Indexes of future service sector activity, such as future revenue and employment, also reflected less optimism this month.

alex.wukman@patch.com