February 2019 – Volume 1; Issue 2
The short February month causes a delay in the release of some of the data that we use to develop the Economic Monitor, so this month’s report is being released a little later than normal. With that said, there is still some interesting tidbits within the various data points. If you have any questions or thoughts on the report, please do not hesitate to let us know.
Economic Survey Results
Note 1: With the economic survey being such a new instrument for us, it will be a couple of months before we can properly identify trending scenarios.
Note 2: Since we are still growing the number of participating companies, response totals are fairly small.
Based on this month’s responses, January seems to be a tough month for the manufacturers of Round Rock. The forecast for the next six months, however, is expected to be strong.
The month-over-month responses show “no change” and/or “decrease” in capacity utilization, volume of new orders, growth rate of new orders, volume of shipments, delivery time, finished goods inventories, prices paid for raw materials, and capital expenditures. Plus, wages and benefits were said to have increased as had the number of employees assuming to result in a reduction of profit margin. Respondents were at least somewhat positive about production and the prices received for finished goods.
The aforementioned optimistic six-month outlook identified an “increase” in production, capacity utilization, volume of new orders, growth rate of new orders, volume of shipments, prices paid for raw materials, and capital expenditures. Manufacturing companies expect to hire more employees to handle this new level of business, but don’t expect their wages and benefits nor their teams’ average workweek to rise.
Last month, the Round Rock retail sector expected the next six months to be very positive for their businesses. Based on this month’s responses, that feeling has been altered. For the questions that ask for an evaluation of the level of general business and how uncertainty has changed the month-over-month outlook, respondents indicated “worsened” for the former and “increase” for the latter.
While the survey results point to higher net sales, most of the other indicators were either neutral or negative. Fortunately, retailers were able to balance any cost issues through scheduling and people management.
Looking forward, retail leaders have a mixed view of the future. More respondents indicated that they will witness a drop in net sales as well as increases in employees, part-time employees, and input prices. They will offset these pressures with higher selling prices and holding off on any capital expenditures.
Extremely similar to its January responses, the service sector conveyed positive results for last month. Overall increases were reported in revenue, input prices (i.e., costs to provide services), selling prices, and capital expenditures. While this uptick in business did cause an understandable increase in the number of employees, the average employee workweek, wages and benefits, business leaders believe that these higher expenses will not damper the rosy outlook for their companies.
From a six-month perspective, respondents feel that the increases in revenue, input prices, selling prices, and capital expenditures (and the subsequent employee-related expense escalation) will continue.
Federal Government Shutdown
Along with the monthly repetitive questions on the outlook survey, we asked participants to indicate if the recently ended federal government shutdown had any impact on their businesses. We received no responses denoting as much.
Labor Market Information 
Typically, communities will witness a rise in their unemployment rate from December to January due to the increase in holiday-related hiring/attrition, and this year is no different. Round Rock’s percentage was up half-a-point; going from 2.7 percent to 3.2 percent. Similar to last month, however, this is still lower than all of our peer communities (i.e., Allen, Frisco, McKinney, Pearland, Plano, and Sugar Land) and all of our surrounding communities (i.e., Cedar Park, Georgetown, and Pflugerville) except for Austin, which was a tenth-of-a-point lower; although the state capital experienced a larger month-over-month increase than Round Rock.
We mentioned in last month’s Economic Monitor that an important factor in Round Rock’s ability to maintain its strong economic climate with such a low unemployment rate is the continued escalation of its labor pool. January was no different. Even with the aforementioned .5 percent increase in unemployment, the labor pool rose 101 people.
ADP National Employment Report® 
Each month, ADP, a large-scale payroll and human resources company releases their National Employment Report®, which provides a high-level look at month-over-month private-sector employment changes across the country. Last month’s report stated an increase of 213,000 jobs in overall nonfarm employment. Their February report conveys another increase; although somewhat lower at 183,000. While small businesses (1 – 49 employees) experienced an increase of 12,000, well below the 63,000 jobs it saw in January; midsized (50 – 499 employees) and large ones (500 or more employees) exceeded their prior month by 15,000 (99,000) and 11,000 (77,000), respectively.
ADP’s Small Business Report, which further synthesizes the small business landscape, actually shows an 8,000 month-over-month decrease for very small businesses (i.e., those below twenty employees). For those small enterprises with between twenty and forty-nine employees, there was a much-better increase of 20,000 jobs. Breaking down the numbers by sector – goods-producing and service-providing – shows that the entire month-over-month loss came from very small businesses in the service-providing sector (-13,000).
Sales Tax Collections 
Round Rock’s sales tax collections continue be on a positive pace. March collections reached over $7.8 million; a 17.2 percent increase over the same time period the year prior. This gives the city the sixth-highest amount in Texas for the time period behind only (in descending order) Houston, San Antonio, Dallas, Austin, Fort Worth, and Arlington.
Economic Insights 
In a speech which included a wide range of topic areas, Mark Sprague, state director of information capital for Independence Title, provided his insights on the economic outlook for the coming year at our February Power Lunch.
For the United States, he believes that the national economy will maintain its improvement trend, but will continue to do so at its recently seen slower pace; calling it the “new norm.” His opinion is that both the housing and automobile industries, nationally, are witnessing a peak, but the retail sector is not suffering quite the apocalypse that others are declaring; more so of an evolution. He identified a number of positive indicators including a third-quarter increase in gross domestic product (GDP) of 3.5 percent, which is a percentage point-and-one-half more than it was predicted to be; improvement in inflation, and the lowering of the U.S. unemployment rate.
Mark also spoke of a few national challenges and issues to be aware of over the next twelve months. For instance, the aforementioned economic recovery has not been widespread. Instead, over three-quarters of job growth has occurred in approximately 14 percent of all U.S. metropolitan areas. Also, less than half of the country has recovered from the effects of the recession. He believes that low unemployment and weak worker productivity will hamper growth opportunities. Finally, he sees the current “trade war” raising costs and, thus, preventing expansions.
Mark was high on the state’s economy. He indicated that the downturn of the energy sector has ended, and he foresees expansion within the manufacturing and service sector. He warned of a slowing within construction activity due a severe labor shortage and a rising of construction and material costs. While a few factors (e.g., product availability) are negatively affecting the residential real estate market, he is seeing the opposite in office and warehouse construction. He also warned that growth and regulatory issues could be major causes of concern going forward.
From a local/regional perspective, Mark is equally bullish. He forecasts growth in both employment and real estate. He believes that regulatory concerns in Austin proper will drive more business to other communities (e.g., Round Rock). He did, however, raise the flag of concern over the issues of labor availability and negative consequences of historical growth.
Real Estate 
The growth in real estate that Mark’s presentation provided is also being witnessed in the number of new construction and “finishouts” (i.e., internal renovations or finishing of new construction projects) in Round Rock. In January, the city’s planning and development services department reports seventy-four new single family homes permits issued, which is less than a percentage point lower than the same month last year. The valuations of those properties, however, is over $1.6 million or 8.1 percent higher than twelve months earlier.
On the commercial side, nine new construction projects were permitted in January, which is three times as many as in the same time period last year. Equally impressive, those nine projects have an average valuation of approximately $5.7 million, while the 2018 projects averaged less than $300,000. The year-over-year difference in the number “finishouts” was dramatic with nineteen in January 2019 compared to seven in January 2018. Similarly to the striking valuation variance in new construction projects, “finishouts” averaged just over $154,000/project in January of this year versus almost $94,000 in 2018.
 Source: Texas Workforce Commission
 Source: ADP
 Source: Texas Comptroller
 Mark Sprague presentation at Round Rock Chamber Power Lunch on February 26, 2019
 Source: City of Round Rock Department of Planning and Development Services