Texas Service Sector Growth Softens

What’s New This Month…

For this month’s survey, Texas business executives were asked supplemental questions on the labor market and pricing power. Results for these questions from the Texas Manufacturing Outlook Survey, Texas Service Sector Outlook Survey and Texas Retail Outlook Survey have been released together. Read the special questions results.

Activity in the Texas service sector grew at a weaker pace in August, 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 20.9 in July to 7.8 in August.

Labor market indicators reflected faster employment growth and longer workweeks this month. The employment index rose from 8.7 to 10.2, while the hours worked index was mostly unchanged at 8.2 in August.

Perceptions of broader business conditions softened, and uncertainty increased compared with July. The general business activity index declined over four points to 0.2 in August, while the company outlook index fell over six points into negative territory at -2.5.

The outlook uncertainty index rose to an all-time high of 19.6, with 30 percent of respondents noting greater uncertainty compared with July.

Wage pressures remained elevated in August, while price pressures were mixed. The wages and benefits index was mostly unchanged at 20.0. The selling prices index declined from 5.8 to 1.5—it’s the lowest reading since early 2016—while the input prices index increased slightly to 23.8.

Respondents’ expectations regarding future business conditions weakened compared with July. The future company outlook index dropped nearly nine points to 4.6 in August, while the future general business activity index plummeted from 10.7 to -4.0.

Other indexes of future service sector activity, such as revenue and employment, fell below their 12-month averages but continued to reflected expectations of positive growth over the next six months.

Texas Retail Outlook Survey….. Retail Sales Hold Flat

Retail sales were flat in August, according to business executives responding to the Texas Retail Outlook Survey. The sales index held largely steady at -0.2, indicating little net change compared with July. Growth in inventories declined slightly, as the inventories index dipped from 7.3 to 5.5.

Retail labor market indicators weakened compared with July, as respondents indicated a decline in employment and a slightly shortened workweek. The employment index dropped over six points to -5.6, while the hours worked index fell from 1.7 in July to -2.9 in August.

Retailers’ perceptions of broader business conditions deteriorated further in August.

The general business activity index weakened from -7.7 to -8.9, while the company outlook index dropped nearly six points to -13.8. The outlook uncertainty index increased this month, surging over 15 points to 21.1.

Retail price and wage pressures increased in August. The input prices index increased 11 points to 18.8, while the selling prices index surged from 5.8 to a 10-month high of 16.8. The wages and benefits index ticked up from 12.1 to 13.5.

Retailers’ perception of future business conditions turned pessimistic this month. The future general business activity index fell nearly 15 points to -14.6, while the future company outlook index plummeted 23 points to -12.4.

Most other indexes of future retail sector activity also fell, reflecting expectations for weaker growth over the next six months.

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

Data were collected August 13–21, and 226 Texas service sector and 53 retail sector business executives responded to the survey. The Dallas Fed conducts the Texas Service Sector Outlook Survey monthly to obtain a timely assessment of the state’s service sector activity.

Firms are asked whether revenue, employment, prices, general business activity, and other indicators increased, decreased or remained unchanged over the previous month.

Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase.

When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the prior month.

If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the prior month. An index will be zero when the number of firms reporting an increase is equal to the number of firms reporting a decrease. Data have been seasonally adjusted as necessary.

Questions regarding the Texas Service Sector Outlook Survey from the Federal Reserve Bank of Dallas can be addressed to Christopher Slijk at christopher.slijk@dal.frb.org.