Texas economy shows 'tepid' industrial growth, mixed services outlook: surveys

The Texas industrial economy continued a "tepid" recovery in October, while service and retail sectors continued to show mixed results, new Federal Reserve Bank of Dallas surveys show, which is reflected in sharp month-on-month and year-on-year wholesale energy price decreases.

Electric Reliability Council of Texas North Hub day-ahead on-peak locational marginal prices averaged about $38/MWh in October, down by more than 58% from September's average around $92.50/MWh and down almost 29% from October 2022's $54.25/MWh, S&P Global Commodity Insights price data shows.

Day-ahead on-peak LMPs in the Midcontinent Independent System Operator's Texas Hub, which incorporates much of the East Texas petrochemical complex, averaged less than $35/MWh in October, down 6.7% from September's average of almost $37.50/MWh and down 42.4% from October 2022's average above $60.70/MWh.

Key indicators worsen

Key indicators in all three Dallas Fed surveys worsened in October, with the retail sales index worst at minus 18.1%, reflecting the difference between the 20.4% of respondents reporting a month-to-month increase in sales and the 38.5% of respondents reporting a decrease. This indicator was minus 4.4% in September and minus 8.3% in October 2022.

"I have been calling for a recession for a long time, and could in fact be totally wrong on both the timing and severity," said Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings, an interdealer commodity broker, in an Oct. 31 email. "Yet, overall the economy seems soft and appears to have been slowly deceasing growth rates right in line with the Federal Reserve's aggressive rate hiking scheme."

Released Oct. 31, the Dallas Fed's Texas Retail Outlook Survey summarizes results from 53 retailers surveyed Oct. 17-25. The retailers were included in the 284 service businesses included in the Texas Service Sector Outlook Survey, for which the revenue index was 0.7%, reflecting the difference between 24.3% of respondents reporting a month-to-month increase and 23.6% reporting a decrease. This indicator was 8.7% in September and 8.5% in October 2022.

Released Oct. 30, the Texas Manufacturing Outlook Survey's production index was 5.2% in October, reflecting the difference between 26.8% of respondents reporting a month-to-month increase and 21.6% reporting a decrease. The Dallas Fed had 94 Texas manufacturers responding to the survey Oct. 17-25.

Peakload, weather linked

ERCOT peakloads averaged 56 GW in October, down sharply from September's 73.4 GW but up more than 4.2 GW from October 2022's 51.8 GW. MISO does not release peakload numbers by generation hub.

"Warmer weather contributed to the strong year over year increase in ERCOT loads, but loads likely increased on a weather-adjusted basis," Morris Greenberg, S&P Global Commodity Insights senior manager for North American power analytics, said Oct. 31.

Combined population-weighted average cooling and heating degree days in October were down almost 49% on the month but up 32% from October 2022, CustomWeather data shows.

OTC Global's Faulkner attributes much of the power price decreases to weak natural gas prices, "via large increases in associated dry gas and increased drilling productivity across North America."

"Much of ERCOT's wholesale pricing is reflective of HDD/CDD [changes], since data center load and population increases make it difficult to tease out the exact effect that economic growth/decreases have had in the recent months," Faulkner said. "The bearishness for the Texas economy is reflected via overall sour economic sentiment via high interest rates and the resumption of student loan repayments. All of this points towards lower consumer spending activity [severely lagged] and consumers returning to a bit more contemplative spending behavior."

Michelle Michot Foss, a fellow in energy, minerals and materials at Rice University's Center for Energy Studies, said, "The bigger question to me is the ever upward increase in retail electric prices, everywhere including here, even with cheap gas. All of those wind, solar, battery costs have to go somewhere, and it ends up with retail customers."