Texas Service Sector Growth Slows In October

Activity in the Texas service sector grew at a reduced pace in October, according to business executives responding to the Texas Service Sector Outlook Survey. The revenue index, a key measure of state service sector conditions, fell from 14.0 in September to 7.1 in October.

Labor market indicators reflected flattening employment and slower growth in hours worked in October. The employment index fell more than two points to 0.6, while the part-time employment index dropped over five points to -1.6. Meanwhile, the hours worked index dipped from 6.6 to 5.5.

Perceptions of broader business conditions point to continued improvement compared with September. The general business activity index advanced nearly two points to 13.2—it’s best reading this year.

The company outlook index remained positive but fell slightly from 9.7 to 7.8, with over 20 percent of respondents noting an improved outlook compared with last month. The outlook uncertainty index rose from 0.0 to 5.8.

Wage and price pressures ticked up slightly in October. The wages and benefits index rose from 7.1 to a post-pandemic high of 8.6, with about 15 percent of respondents noting increases in employee compensation compared with September.

The selling price index rose nearly two points to 4.1, while the input prices index remained largely unchanged at 18.4.

Respondents’ expectations regarding future business activity were slightly more optimistic in October. The future general business activity index rose from 18.9 to 20.1, while the future revenue index increased from 31.9 to 36.3—its highest reading since February.

Other indexes of future service sector activity such as employment were solidly positive, suggesting expectations of increased activity in the first half of 2021.

Texas Retail Sales Decelerate

Retail sales activity grew at a slower pace in October following a surge in September, according to business executives responding to the Texas Retail Outlook Survey.

The sales index, a key measure of state retail activity, fell from 20.8 to 5.2, although nearly one-quarter of respondents reported increased sales compared with September.

Inventories also leveled off for the first time since the pandemic began, as the inventories index increased from -4.1 to 1.9.

Retail labor market indicators deteriorated slightly in October, with net declines in employment and a shortening in average workweek length.

The employment index fell more than four points to -2.1, with the part-time index declining to -4.0. The hours worked index shed nearly eight points to -4.8.

Retailers’ perceptions of broader business conditions improved in October. The general business activity index rose over four points to 14.6, while the company outlook index advanced nearly six points to 14.8.

The outlook uncertainty index fell to -2.0, suggesting that net uncertainty declined slightly compared with September.

Retail wage pressures increased, while price pressures eased in October. The wages and benefits index picked up from 7.3 to 11.4. Over 15 percent of respondents noted increased wages, while 4.2 percent reported falling wages. The selling prices index fell from 22.6 to 19.0, while the input prices index fell from 26.3 to 18.7.

Retailers’ perceptions of future activity continued to reflect optimism in October, though less so than in September. The future general business activity index slipped about three points to 21.4, while the future sales index plummeted nearly 17 points but remained positive at 26.1.

Other indexes of future retail activity such as employment slipped but held positive, pointing to expectations of expanding activity over the next six months.

The Texas Retail Outlook Survey is a component of the Texas Service Sector Outlook Survey that uses information only from respondents in the retail and wholesale sectors.

Source: Federal Reserve Bank of Dallas