The Texas economy is facing headwinds.

That's the gist of two new reports from the Federal Reserve Bank of Dallas, which show that although the state's manufacturing output grew in October, new orders are declining and the industry outlook is worsening.

Meanwhile, Texas retail sales declined again in October. However, activity in the Texas service sector increased at a faster pace in October, and labor market indicators suggested continued employment growth, according to the Dallas Fed.

So what is happening? Let's start with manufacturing.

“This month’s survey painted a bit of a mixed picture for Texas manufacturing conditions — production continues to grow, but new orders are declining, and outlooks worsened further,” said Emily Kerr, Dallas Fed senior business economist.

Kerr said that hiring remains solid, with the majority of manufacturers saying they are understaffed. However, "uncertainty increased and several contacts voiced concern about a slowdown in business,” she said.

The anonymous Texas Business Outlook Survey received feedback from 422 business executives Oct. 18-26.

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'Fighting for every order'

According to responses, the October index for general business activity, which measures broader business conditions, posted a sixth consecutive negative reading, edging down from minus 17.2 to minus 19.4.

The new orders index slipped to minus 8.8 ― its fifth month in a row in negative territory, suggesting a continued decrease in demand.

"We are fighting for every order, it seems, even though we are the preferred vendor for most of our customers," said an executive in machinery manufacturing.

An executive in computer and electronics manufacturing said, "We have not laid anyone off for the last three years. However, we are making the decision to lay off several this fall, as revenue projections continue to look lower for the next 12 months."

Austin might be an exception to the slowdown in manufacturing. Central Texas is in a manufacturing boom, led by electric automaker Tesla, which has made Austin its headquarters. The company has opened a $1.1 billion manufacturing facility in southeastern Travis County, where it is producing its Model Y electric SUVs.

In addition, tech giant Samsung is building a $17 billion semiconductor manufacturing facility in Taylor. According to documents filed with the state, Samsung is considering building 11 chipmaking facilities in the Austin area over the next two decades, a move that could lead to nearly $200 billion in new investment and create more than 10,000 jobs for the technology giant.

Ray Perryman, a Waco-based economist, said that if Samsung carries through with plans to build all or most of the 11 fabs in the Austin area, it would be among the biggest wins in the history of Austin's technology sector. He compared it to Austin landing the research consortiums MCC and Sematech in the 1980s, which helped lay the foundation for Austin to become a technology hub.

"If this entire program comes to fruition, it would dwarf any prior locations and rank with the attraction of MCC and Sematech in the 1980s as the most important milestones in cementing the Austin area as a major force in the global technology complex," Perryman said.

Recent announcements of U.S. expansion in the semiconductor industry are a major shift after being largely dormant for more than a decade, Perryman said. The U.S. investments are occurring in response to the pandemic and supply chain challenges that followed, he said.

"An investment of this magnitude would make the Austin area the cornerstone of the next generation of the domestic electronics complex," Perryman said. "It would facilitate notable locations of other customers and supporting sectors and expand the knowledge worker base in the area in an unprecedented manner."

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Service sector growth improves, while Texas retail falters

Activity in the Texas service sector ― which includes retail and hospitality-related businesses as well as technical services ― increased at a faster pace in October, and labor market indicators suggested continued employment growth, according to the Texas Service Sector Outlook Survey.

But it's a mixed bag.

“Perceptions of broader business conditions worsened, and uncertainty continued to increase,” said Jesus Cañas, Dallas Fed senior business economist. “Like in the case of manufacturing, several contacts expressed concerns about a slowdown in economic activity.”

The service sector accounts for nearly 70% of the state's economy and employs about 9.5 million workers, according to the Dallas Fed.

The Dallas Fed survey of the service sector includes a retail section, focused on information from respondents in retail and wholesale businesses. The retail survey found that sales deteriorated in October.

Retailers noted declining sales for the eighth consecutive month in October, though at a slower pace than in September, Cañas said.

Retailers are feeling the pressure on hiring and with a jump in operational expenses.

"We have set up interviews, but applicants do not show. We have hired workers, and they don't show up the first day," an e-commerce retailer said. "We have hired workers, and they quit for the most minor reasons. I have spent thousands of dollars on advertisements to fill job openings."

Statesman staff writer Bob Sechler contributed to this report.

This article originally appeared on Austin American-Statesman: Texas economy is facing headwinds, new report shows