The surge in COVID-19 cases in recent months has slowed the Texas economy, hurting business activity and employment across industrial sectors, according to the Federal Reserve Bank of Dallas.
Dallas Fed economists said in a report released Thursday that they expect financial stress to increase early next year on both households and businesses, particularly restaurants, retailers and other businesses that rely on personal contract. As a result, the economists forecast weaker economic growth in 2021.
The seven-day average of COVID-19 patients in hospitals in Texas has nearly tripled since September, to about 9,269 from 3,159, the report said. Meanwhile, as cases have soared, the economy has sputtered.
Activity in both the manufacturing and service sectors fell sharply in November, according to Dallas Fed surveys. The service sector, which includes businesses from retailers to law firms to engineering consultants, contracted for the first time since July.
Retail activity also contracted in November, despite the start of the holiday shopping season.
Companies responding to the surveys were downbeat, according to the Dallas Fed. Three out of four said they were adjusting their businesses in response to the rising COVID-19 cases, with most reporting they were cutting operating expenses and reducing or postponing capital spending.
Nearly 20 percent said they were laying off workers.
FORECAST: Houston economy to struggle in 2021
The state’s unemployment rate, meanwhile, jumped more than a percentage point in November to 8.1 percent from 6.7 percent in October, the Texas Workforce Commission reported last week. Job growth in the state fell by nearly half, to 61,000 from 115,000 in October.
The Dallas Fed expects job growth to be flat in December.
Consumer-facing business such as hotels continue to struggle, the report said. Occupancy rates have rebounded from historic lows in the spring, but remain below the break even point for many properties.
Commercial real estate is also taking a beating as hiring lags, employees work from home and companies reduce space. Office vacancy rates in Houston and Dallas — above 20 percent — are at their highest since the Great Recession of a decade ago and the financial crisis of 2008, according to the Dallas Fed.
While the distribution of vaccines and the passage of a $900 billion federal stimulus package represent positive developments for the economy, the outlook for 2021 remains unclear, Dallas Fed economist said. If most Americans are vaccinated by the summer, it will provide significant boost to the economy as travel picks up and people resume normal activities.
Still uncertain is whether disruptions caused by the pandemic will be long-lasting and what impact they will have, Dallas Fed economists said. Among the questions are whether business travel, a vital source of revenues for airlines, will return to pre-pandemic levels after a year of videoconferencing; large numbers of employees will continue to work from home and further shrink office occupancy; and brick-and-mortar retailers can recover after the pandemic accelerated the shift to e-commerce.