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Texas service sector activity continues to expand; retail sales growth slows sharply in June, says Dallas Fed survey

For Immediate Release: June 26, 2018

DALLAS—Texas service sector activity continued to increase in June but at a slower pace than in May, according to the Federal Reserve Bank of Dallas’ Texas Service Sector Outlook Survey (TSSOS).

The revenue index, a key measure of state service sector conditions, fell from 22.8 in May to 19.0 in June. Price pressures remained elevated and wage pressures accelerated. The selling price index was unchanged at 15.4, significantly above its postrecession average. The wages and benefits index rose from 22.6 in May to 24.2 in June.

“The Texas private service sector remained in expansion, with revenue and employment continuing to grow. Wage pressures increased, with the wages and benefits index rising to an all-time high,” said Christopher Slijk, Dallas Fed assistant economist. “Respondents remained optimistic, and the measure of retailers’ expectations of future sales rose to its highest level this year.”

Here are some additional takeaways from this month’s report:

Perceptions of broader economic conditions were optimistic. The general business activity index advanced nearly four points to 22.4, its highest reading since the beginning of the year. The company outlook index held steady at 14.4.

Labor market indicators pointed to continued growth. The employment index remained positive but fell slightly from 16.6 in May to 13.9 in June. The hours worked index remained largely unchanged at 10.7, its highest level since early 2012.

Respondents were also optimistic about future business conditions. The future general business activity index rose three points to 28.7, while the future company outlook index was unchanged at 27.6. Indexes of future service sector activity, such as revenue and employment, also reflected continued optimism this month.

TSSOS also includes a component called the Texas Retail Outlook Survey (TROS), which uses information from respondents in the retail and wholesale sectors only.

Key takeaways from this month’s TROS report include:

Retail sales rose slightly but at a slower pace. The sales index plunged from 35.1 in May to 1.6 in June. Inventories rose significantly, with the index surging over 20 points to 12.7.

Price and wage pressures increased. The selling prices index moved up from 24.6 in May to 27.0 in June. The wages and benefits index rose over five points to 29.5, its highest reading on record.

Labor market measures pointed to faster growth. The employment index rose slightly to 10.7, above its 12-month average. The hours worked index rose to 9.1.

Retailers remained optimistic about future economic conditions. The index of future general business activity rose slightly to 23.2. The index of future company outlook fell but remained positive, declining from 23.7 in May to 13.9 in June. Indexes of future retail sector activity picked up, with the future sales index increasing to an eight-month high.

This month, business executives from both manufacturing and service sector firms were asked special questions on technology, employment expectations and pricing power.

The survey is conducted monthly by the Dallas Fed to obtain a timely assessment of activity in the state’s service sector, which represents almost 70 percent of the state economy and employs about 8.6 million workers. Positive readings in the survey generally indicate expansion of service sector activity, while readings below zero generally indicate contraction.

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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
E-mail: jennifer.chamberlain@dal.frb.org