Texas economic activity shows signs of weakening, reflected in loads, power prices

Texas manufacturing growth in August dropped to its lowest level since May 2020 and the retail sales index stayed negative for the sixth consecutive month, also similar to the pandemic recession, new Federal Reserve Bank of Dallas surveys show.

The statistics were reflected in lighter loads and weaker power prices.

The Texas Retail Outlook Survey's retail sales index for August, released Aug. 30, was minus 5.4%, which is the difference between the 29.7% of respondents reporting an increase in sales month on month, and the 35.1% reporting a decrease. This is an improvement from the July survey's minus 19.4% retail sales index but is the sixth month in a row of monthly decreases, which previously happened from February through August 2020.

"Retailers' inventories continued to increase on net, although the inventories index's decline from 13.2% to 2.5% suggests a significantly reduced pace of increase," the Dallas Fed said.

Data was collected Aug. 16-24 from 56 retailers.

Negative new orders index

The Dallas Fed's Texas Manufacturing Outlook Survey, released Aug. 29, shows a production index of 1.2%, as 26.1% of respondents reported increases vs. 24.9% reporting decreases. Data was collected Aug. 16-24 from 86 Texas manufacturers. The production index's most recent result lower than this August was minus 26.5% in May 2020.

"The new orders index was negative for [the] third month in a row—suggesting a continued decrease in demand—although it moved up from [minus] 9.2% to [minus] 4.4%," the Dallas Fed said.

The Texas Service Sector Outlook Survey, released Aug. 30, showed a revenue sector index of 7.2%, as 30.5% of respondents reported an increase while 23.3% reported a decrease. Data was collected Aug. 16-24 from 283 service sector business executives, including 56 retailers.

"Perceptions of broader business conditions remained negative in August, although they were less pessimistic compared with July," the Dallas Fed said. "The general business activity index rose from -10.9% to -5.7%, with the share of firms that reported worsened activity falling from 27% to 20%."

The Electric Reliability Council of Texas reported peakloads averaging 71 GW through Aug. 29, compared with 75.8 GW in July, despite virtually flat population-weighted combined heating and cooling degree days, according to CustomWeather data.

Electricity prices weaken

Power prices weakened in both ERCOT and the Midcontinent Independent System Operator's Texas Hub, S&P Global Commodity Insights data shows.

Through Aug. 29, ERCOT North Hub day-ahead on-peak locational marginal prices averaged $121.12/MWh, down $37.45 or 23.6% from July's $158.57/MWh. MISO Texas Hub day-ahead on-peak LMPs fell $3.35 or 3.6% to average less than $89/MWh through Aug. 29, compared with July's $92.32/MWh.

These power prices weakened despite a substantial increase in spot natural gas prices. At the Houston Ship Channel, spot gas averaged $8.205/MMBtu in August, up $1.44 or 21.4% from July's $6.761/MMBtu.