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First Cut: Dallas Fed service sector slow and uncertain in August

The general business conditions index in the Dallas Fed’s Texas Service Sector Outlook fell to a scant 0.2 in August from 4.7 in July. The index has turned in a number of negatives since December 2018 when economic slowdown began to bite. The uneven performance suggests that the few months of expansion since then cannot fully disguise that activity is trending lower. The index for six months from now fell to -4.0 in August from 10.7 in July and was the lowest since -9.2 in December 2018 when service businesses got a double hit from slower activity and the start of the partial federal government shutdown.

The softness in the region’s service sector is mirrored in the index for uncertainty which reached a series high of 19.6 in August.

Falling revenues are part of the reason that perceptions are hovering on the brink of contraction. The index for revenues fell to 7.8 in August from 20.9 in July and was the lowest since 2.7 in May when the threat of fresh tariffs with China put a hold on some business. Looking past that outlier, the index is the lowest since 6.8 in August 2016. Behavior of the expected revenues index is similar. The six-month index was down to 31.3 in August from 40.8 in July, and the lowest since 27.7 in May.

Employment continued to expand at a modest pace in August with the index at 10.2 after 8.7 in July. Hours worked were also higher at 8.2 after 7.6, and wages managed to eke out a slightly faster pace of increases at 20.0 after 19.2.

Input prices were a tad higher at 23.8 in August after 22.5 in July, suggesting that other costs were gaining even as energy prices were lower. Selling prices fell to 1.5 from 5.8, the lowest since -0.2 in February 2016. Any pricing power service businesses have had appear to be largely exhausted.

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