Dallas Fed: Texas service sector activity rebounds, but retail outlook worsens

January 31, 2023

DALLAS—Growth in Texas service sector activity resumed in January, and labor market indicators pointed to stronger employment growth and steady workweeks, according to business executives responding to the Texas Service Sector Outlook Survey.

“Price and wage pressures remained elevated, though there was some moderation in input price growth,” said Jesus Cañas, Dallas Fed senior business economist. “Perceptions of broader business conditions continued to worsen in January, but pessimism waned.”

Key takeaways from the service sector survey:

• The revenue index rose six points to 4.9, suggesting a pickup in activity growth from December.
• The employment index climbed five points from 5.3 to 10.5, and the hours worked index improved from -1.8 to 0.9.
• The input prices index fell from 43.4 to 38.8, while the selling prices index remained flat at 18.9. The wages and benefits index moved up two points to 21.7, still elevated relative to its average reading of 15.7.
• The general business activity index posted an eighth consecutive negative reading but moved up six points to -15.0. 

Texas Retail Sales Decline Again in January

“Retail sales continued to weaken in January, but at a slower pace than in December,” Cañas said. “Retail labor market indicators reflected higher employment and shorter workweeks.”

Key takeaways from the retail survey: 

• The sales index improved from -12.0 to -3.0, suggesting sales fell at a much slower pace than in December.
• Retailers’ inventories continued to increase but at a slower pace than last month.
• Perceptions of broader business conditions continued to worsen in January both the general business activity and company outlook indexes remained deep in negative territory.

Data were collected January 17–25, and 321 Texas service sector business executives, of which 70 were retailers, responded to the survey.

For this month’s survey, executives in both manufacturing and the service sector responded to special questions on the labor market.

Key takeaways from the special questions to retailers:

• The share firms currently trying to hire fell to 50 percent, down from 56 percent in October and from 68 percent a year ago.
• About 60 percent of firms continue to report they are understaffed, though the share of these firms looking to hire eased from October.
• Lack of applicants remains the top hiring impediment, followed by workers looking for more pay than is offered.

The Dallas Fed conducts the survey monthly to obtain a timely assessment of activity in the state’s service sector, which represents almost 70 percent of the state’s economy and employs about 9.5 million workers.

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Media contact:
Jon Prior
Federal Reserve Bank of Dallas
Phone: 214-922-6857
Email: jon.prior@dal.frb.org