Texas businesses struggle with economic uncertainty and high interest rates

In June 2025, Texas businesses reported significant challenges hindering their growth due to prolonged economic policy uncertainty and persistently high interest rates. Executives from over 300 firms participated in the Texas Business Outlook Surveys administered by the Federal Reserve Bank of Dallas. Many of these leaders expressed the sentiment that prolonged indecision regarding tariff policies, alongside elevated borrowing costs, has led to a climate of hesitation affecting investment and hiring decisions. Reports indicated stalled capital projects and prolonged procurement periods notably in sectors sensitive to international trade, such as manufacturing and wholesale distribution. One construction machinery dealer remarked on an apparent hesitance from customers in pursuing new equipment purchases, highlighting their desire for political clarity on tax and depreciation relief—a pressing issue in the current economic climate. Additionally, executives from various sectors indicated that uncertainty around tariffs, particularly concerning retaliatory measures from countries like China, is contributing to an environment that is harder to navigate than during the COVID-19 pandemic. Anxiety over future trade actions had resulted in suppliers raising prices preemptively and increased operational costs, thereby amplifying the prevailing business concerns. Though Texas firms reported wage growth at a rate of 3.7 percent over the past year, expectations suggest a decrease to 3.1 percent going forward. Similarly, input prices spiked 4.1 percent, which is projected to moderate to 3.8 percent, while selling prices were anticipated to rise more modestly at 2.8 percent. These numbers indicate a potential stabilizing cost environment, but also shed light on the bridging inflationary pressures that Texas businesses face. Although 37 percent of firms indicated an optimism for capital spending plans, a significant number conveyed a ‘wait-and-see’ mentality due to the complicated interplay between interest rate policies and tariff risks. From the perspective of business executives, the current terrain reflects less a crisis and more a pronounced gridlock in decision-making as they respond to high interest rates, shifting trade policies, and impending tax changes. The most commonly cited risks bearing influence on their outlook for the near future were softening demand followed by geopolitical instability and domestic policy unpredictability, suggesting a shift in concerns away from inflation. The overall findings indicate that while the Texas business landscape is not plunging into decline, it is exhibiting a significant freeze in activity spurred by prevailing uncertainties, making it imperative for political leaders to take decisive action and provide clarity that could foster a more stable economic environment conducive to growth.