After retail sales growth in Texas was bucked off its horse by the oil market in 2015, it has saddled back up. Retail sales estimates from the Federal Reserve Bank of Dallas show year-to-year growth emerged in September 2016 following declines in the prior 13 months. The most recent data point for February 2017 indicates growth in Texas is only a notch below the national pace of retail.

Improvement in Texas is important on a couple fronts. First, Texas represents about 10% of total retail sales in the United States. It was approaching 11% in 2013, prior to the downturn in oil prices. So, it’s a large part of U.S. retail and a key engine for growth.

Second, it’s a bellwether for other energy-focused local economies where retail sales estimates aren’t available. Texas’ more diversified economy has held up on a state level with strong growth in Austin and Dallas offsetting weakness in Houston and the western part of the state. But the relatively weaker retail sales trends indicate job losses in some sectors and cities have likely led to job insecurity and lower incomes in others. Less diversified local economies in parts of the Central and Appalachian region have experienced an even sharper slowdown in job growth, and thus likely an even more severe erosion in retail sales growth.

Whether Texas and these other energy-focused regions of the country can once again run ahead of the rest of retail, rather than just post renewed growth, depends partly on a sustained rally in the oil market.

Oil prices have doubled since their low-point in early 2016, but gains have leveled off since the start of the year. Partly restraining oil prices is renewed optimism among oil investors in the United States that has softened cuts to global production.

And further cuts to global production are needed—oil inventories remain elevated due to moderate global growth. Given these factors, Kantar Retail expects oil prices to remain well below their previous peak within the next five years. This suggests year-to-year retail sales growth in most of the energy-focused regions will continue to benefit from renewed stability in the oil market, but the long-term trajectory for retail sales growth will likely hold below the booming years of 2012 and 2013.

Even with the relatively more moderate outlook for oil prices, Texas in particular will remain an essential market for retailers and suppliers with unique opportunities and challenges. Kantar Retail recently published a Texas Retail Scene Overview for KRiQ subscribers providing an in-depth look at the macroeconomic environment, shopper landscape, key retailers, and retail implications.

If you aren’t a subscriber and still want to learn more about our retail insights in Texas and other regions, please contact me.

Doug Hermanson


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