Texas business owners feeling the impacts of a slowing economy

Entrepreneurs in the Lone Star State are borrowing less and less amid inflation, rising interest rates.

By Sean SaldanaApril 7, 2023 2:37 pm,

If you’re an entrepreneur or a small business owner, it can often feel like you’re always working. For Melissa Winwood, this is not just a feeling.

“We answer the phone 24 hours a day, seven days a week,” she told the Texas Standard.

Winwood is president of Winwood Motor Company, a towing and transport company in Santa Fe, Texas. After more than two decades in business, she and her husband Albert Winwood have managed to build up a fleet of five tow trucks.

“We tow for individuals, we tow for school districts. We have about 12 shops that we tow for in our surrounding area,” says Melissa Winwood.

Despite this success, Winwood says that as business owners, she and her family are focused on one thing: “survival.”

The economic outlook

New data from the Dallas Federal Reserve shows that general business activity in Texas has fallen – which means that increasingly, entrepreneurs are reconsidering or holding off on large investments for their businesses.

Part of this slowdown in activity is due to rising costs for everyday business expenses, a factor that has put Winwood Motor Company in “maintenance mode,” according to Melissa Winwood.

Rising fuel and insurance costs have made a standard, cross-town tow – which costs $65 – less profitable for the Winwoods.

“Regardless of whether fuel is almost $4 a gallon or it’s $250 a gallon, [we still charge] $65,” Melissa Winwood said. 

Right now, these rising operating costs are clashing with a powerful piece of macroeconomic policy: rising interest rates. 

As the Federal Reserve has raised interest rates over the past year, the cost of taking out loans has gone up considerably.

The Winwoods are currently deciding whether or not to purchase another tow truck for around $85,000 – a large business investment that would require financing. But over the past year, they noticed the cost of borrowing money has gone up.

“The interest rate last year was 5.8%. This year, I’m paying 10%,” Melissa Winwood said.

Courtesy of Melissa and Albert Winwood

Some of the five trucks Winwood Motor Company has as part of their fleet.

Cooling the economy off (and how it affects businesses)

The situation the Winwoods have found themselves in is no accident.

In the broader effort to push inflation down, policymakers have intentionally made it more expensive to borrow money.

“This is precisely what we were expecting to happen,” says University of Texas – San Antonio economics professor Bulent Temel.

To get an idea for how the economy is doing, Temel looks at three main figures: GDP, unemployment and inflation.

Two of those things are doing fine: “Both GDP and unemployment are at reasonably good levels,” he said.

What’s not at a good level is inflation, currently at 6.03% – much higher than the Federal Reserve’s target of 2%.

This is why for policymakers, “the priority becomes reducing inflation,” according to Temel. 

The rising cost of borrowing, mixed with things like inflation and general uncertainty about the future, is a big reason why fewer Texas businesses are taking out loans. 

Over the past six weeks, 31% of financial institutions surveyed by the Dallas Federal Reserve reported decreases in commercial and industrial loans.

“There’s nothing surprising about this, because when businesses take out less loans, they spend less money. And that reduced spending is what cools down the economy and reduces inflation,” says Temel.

It’s not just the business owners…

There have also been declines in consumer loans, money everyday Texans might borrow for things like cars, vacations, or as Texas State University professor William Chittenden describes it, “basically, anything that’s not your mortgage loan.”

The same rising costs, inflation and uncertainty businesses are dealing with are also being felt by consumers, who have responded by reeling in their spending.

Dallas Fed data shows that over the past month and a half, 40.6% of the financial institutions they surveyed reported giving out fewer consumer loans.

“Fewer loans being requested is typically because potential borrowers see the economy slowing down,” says Chittenden.

Another development: 11.8% of Dallas Fed survey respondents reported seeing a rise in consumer loans that aren’t being paid back.

“That sometimes is a little early warning sign that things are starting to slow down in the economy,” notes Chittenden. 

A slow down, but not a recession… yet

Most economists would agree that the United States is not in a recession right now – but things are moving in that direction. Fortunately for residents of the Lone Star State, everything’s bigger in Texas.

“One benefit of [Texas] being the second largest economy in the country is that we’ve got a very well diversified economy, and we should be able to weather the storm,” says Chittenden.

Texas also continues to add jobs. In February alone, the state led the nation in job growth, adding 58,000 positions. 

The state also enjoys the economic benefit of large migration. Last year, Texas saw more than 230,000 relocate from within the United States.

Despite the slow down, Albert and Melissa Winwood are celebrating 23 years of their business this year.
Courtesy of Melissa and Albert Winwood

“We’ve got attractive demographics,” notes Chittenden, “and that allows our economy to continue to grow.”

Texas is a great state for business and economic development, which is why even for people in “survival” mode, like Melissa Winwood, there are still things to celebrate – like 23 years of entrepreneurship.

“We actually [started our business] in the first week in April in the year 2000, so this is our anniversary month,” she told the Texas Standard.

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