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Texas service sector growth boosts hiring plans, but concerns persist

Steady retail sales growth helped sustain the expansion of the Texas service sector in February, but some uncertainties about the new White House administration and the energy industry’s recovery added a note of caution to otherwise optimistic outlooks, according to a report Tuesday from the Federal Reserve Bank of Dallas.

The state revenue index, a key measure of activity at private service-providing firms, dropped to a reading of 14.1 in February from 16.2 the prior month, according to the Texas Service Sector Outlook Survey. The lesser, positive figure indicates that the sector still grew during the month, but at a slower rate than it did in January.

The growth of retail sales also slowed slightly but essentially maintained pace in February. The state sales index ticked down to a reading of 6.9 in February from 7.4 the prior month, according to the Texas Retail Outlook Survey, a subset of the broader sector report.

Retailers continued to pull back on hiring during the month, the report noted. While work weeks held steady, a measure of retail employment dropped for a second consecutive month.

Hiring across the service sector as a whole continued to expand modestly, reaching 84 consecutive months of payroll growth, the Dallas Fed said.

Furthermore, compared with February 2016, a greater share of service-providing firms said they expected to hire — and a smaller share said they expected to reduce payrolls — over the next six to 12 months.

About six in 10 respondents said they had trouble finding qualified workers, roughly the same ratio as a year ago.

“In over 40 years in business, it’s always been hard to find quality employees,” said a building material and garden supply store manager.

Fewer than half of the managers sector-wide said they would raise wages to attract more workers, in line with last year. However, half of the retailer respondents said they expected to raise wages to draw hires, a notable increase from just a third 12 months ago.

Private service-providing companies account for about two-thirds of the state’s nonfarm jobs, according to the Texas Workforce Commission. Companies account for about 60 percent of the state’s economic output, according to the Dallas Fed.

Overall, the generally steady performance in February did little to boost optimism among retailers and other service-providing firms, according to the surveys. Measures of current and future business outlooks remained positive in February, but less so than in January, the report showed.

In anonymous comments compiled in the report, several business executives said they still anticipated regulatory and tax relief from a business-friendly White House and Congress but also expressed concerns about the current environment in Washington.

“With President Trump in charge, we are out of our comfort zone,” said the manager of a food service and drinking place. “I am so glad he is there, but full of uncertainty.”

Other managers noted concerns about the president’s rhetoric about Mexico and how a border tax, a wall and other proposals could inhibit business in the region. A real estate manager noted a slowdown in projects along the border, calling the current U.S.-Mexico relationship “a negative for Texas and for the border region.”

A food and beverage store manager said the devaluation of the peso, lower Mexican consumer spending and the potential for reduced immigration had dampened the company’s outlook and already hurt revenue.

But several other managers noted generally favorable attitudes about business prospects under Trump and a GOP-controlled Congress, particularly with regard to lower regulatory and tax burdens.

“If community banks continue to see positive regulatory relief and real tax cuts for middle class, then most positive rural economic influences will begin to emerge,” said the manager of a credit remediation firm. “Just like getting a good rain.”

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