Anna Plunger and Emily Carr
Texas businesses reported below-average output growth in early 2023 while employment and wage growth remained high despite signs of a softening labor market.
Price and wage inflation are expected to slow this year, but remain above historical averages. Given the current economic headwinds, Texas is likely to avoid a recession this year, but job growth is expected to slow across the state in 2023.
Business output has hardly expanded.
As we entered the new year, both the services and manufacturing sectors were barely expanding. The Dallas Fed's Texas Business Outlook Survey's manufacturing production index (calculated by subtracting the percentage of respondents reporting an increase from the percentage of respondents reporting a decline) has been near zero since mid-2022.This suggests weak overall growth, but not a complete contraction. (Chart 1).
The manufacturing industry new orders index in January was negative for the eighth consecutive time, but it rose from -11.0 to -4.0, indicating that the pace of decline in new orders has eased.
The service revenue index trended downward throughout 2022, dropping to zero at the end of the year, but picking up slightly in January. Most service industries pointed to declining revenues, with officials citing high inflation and rising interest rates.
Tentative signs of labor market cooling emerge
The TBOS employment index continued to rise in January despite slower-than-usual growth in services and manufacturing as a result of labor shortages and a still-tight labor market. Companies are still hiring to fill open positions and are still hesitant to lay off employees due to difficulty recruiting candidates. Despite this, the percentage of companies considering hiring was 50% in January, down from 68% a year ago.
The majority of companies remain understaffed, despite an increasing proportion of companies choosing not to hire at this time. (Figure 2).
There has also been an increase in the proportion of companies reporting that they are overstaffed but not laying off workers, indicating hoarding of labor. “We may be overstaffed by about 15% right now, but we don't want to cut staff or shorten hours because we don't know if things will get better,” a manufacturing official reported.
The lack of applicants remains a major barrier to recruitment.However, when asked how job candidate retention has changed over the past month, more companies reported improvement rather than deterioration for the first time since the question was added to the survey in June 2021. It pointed out (Chart 3).
“A few months ago it was more difficult to hire, but it seems to have eased up a bit,'' said one retailer. A medical professional said: The phenomenon of “ghosting” [abruptly terminating contact with] Employers…have had their pay reduced. ”
Wage growth is expected to slow in 2023
Companies usually don't raise wages often. Three-quarters of TBOS respondents typically report no change in wages in any given month. As wage pressure increases in 2022, the percentage of companies raising wages monthly has reached 40%.
Although the wage growth rate is still rising, it has been on a downward trend since mid-2022. “Following the mid-year salary increase in July 2022, we implemented a significant (more than 10%) salary increase in December,” said a manufacturing representative. “We thought this was essential to retaining our employees, and we were successful in hiring everyone we wanted to keep. We hope we won't have to give another raise before the end of the year.”
A special question in December showed that TBOS companies reported lower expected wage increases in 2023 than in 2022. Overall, TBOS companies on average expect wage growth to be 5.6% in 2023, down from 7.6% in 2022. Despite the expected slowdown, wage growth is expected to remain strong. “Wage demands are higher than ever,” said one technology services executive, and one apartment management company said, “The workers are holding us hostage for higher wages.”
Texas job growth expected to slow in 2023
Texas employment grew 3.4% in the fourth quarter of 2022, but employment growth could be revised downward as a result of benchmarking that adjusts payroll survey data to more accurately quantify actual job growth There is sex. Following these revisions, the data for the first half of 2022 has been significantly downgraded.
Employment growth was driven by increases in information services, energy, health care, leisure and hospitality, trade, transportation, and utilities. (Chart 4). Job losses occurred in professional services, business services, and construction.
Texas outperformed the nation in terms of job growth in 2022, even after the index was revised so that the number of employed people nationwide also decreased. These revisions, which are incorporated into the Bureau of Labor Statistics' state payroll employment data in March, are historically large and indicate a cooler labor market than originally suggested (in contrast, Amendments to national standards will not be incorporated into official data until January 2024).
With momentum slowing heading into 2023, lower oil prices, and declines in key indicators for the U.S. and Texas, the Dallas Fed's December 2023 vs. December payrolls forecast for Texas jobs is 1.4%, 80% The confidence interval is 0.7%. 2.2 percent.
That means growth is below the state's long-term trend of 2%, but not a recession. Risks are weighted to the downside, with Texas businesses expressing concerns about weakening demand, a tight labor market, inflation and rising interest rates.
About the author
Plunger is a research analyst in the research division of the Federal Reserve Bank of Dallas.
car He is a senior business economist in the research division of the Federal Reserve Bank of Dallas.
The views expressed are those of the author and are not attributable to the Federal Reserve Bank of Dallas or the Federal Reserve System.
