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Texas Service Sector Activity Decelerates, Retail Sales Growth Weakens, Says Dallas Fed Survey

For Immediate Release: January 2, 2019

DALLAS—Texas service sector activity grew at a slower pace in December, according to business executives responding to the Texas Service Sector Outlook Survey.

The revenue index, a key measure of state service sector conditions, fell more than 11 points to 10.1 in December. Positive readings in the survey generally indicate expansion of service sector activity, while readings below zero generally indicate contraction.

“December was a softer month for growth in the state’s service sector, as revenue and labor market indicators pointed to continued but slower expansion,” said Christopher Slijk, Dallas Fed assistant economist. “Firms’ outlooks deteriorated notably, particularly in retail, where nearly a quarter of respondents noted a weakening in their expectations of business conditions.”

The future general business activity index plummeted nearly 22 points to -5.0 in December, its first negative reading in over two years, while the future company outlook index fell from 17.3 to 1.6. Other indexes of future service sector activity, such as revenue and employment, also fell but remained positive.

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

Perceptions of broader economic conditions turned negative, and uncertainty increased. The general business activity index fell to -5.0, its lowest reading since early 2016, while the company outlook index declined to -4.4 in December. The outlook uncertainty index rose to a new high of 15.0.

Employment growth ticked up. The employment index rose from 8.7 in November to 9.9 in December, while the hours worked index declined from 7.5 to 1.9.

Price and wage pressures eased slightly. The wages and benefits index dipped from 20.9 in November to 19.8 in December, while the selling price index fell to 10.5. 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 grew at a slower pace. The sales index declined from 13.0 in November to 6.2 in December. Inventory growth picked up, and the inventories index increased nearly three points to 6.4.

Employment fell but workweeks lengthened. The employment index declined from 2.9 in November to -4.5 in December, its worst reading since 2016. The hours worked index declined nearly four points but remained positive at 2.5.

Retailers’ perceptions of broader economic conditions deteriorated. The general business activity index fell into negative territory, dropping over 24 points to -16.8. The company outlook index fell from 4.1 in November to -15.6 in December, its weakest reading in nearly a decade.

Perceptions of future economic conditions also worsened. The future general business activity index fell nearly 14 points to -12.0, while the future company outlook index fell from 0.2 to -11.6, a multiyear low. Other indexes of future activity, such as sales and employment, also turned negative, suggesting a weakened outlook six months ahead.

For this month’s Texas Business Outlook Surveys, respondents were also asked special questions on costs, prices and margins.

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
Email: jennifer.chamberlain@dal.frb.org