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First Cut: Dallas Fed’s service sector conditions slowed in October

The Dallas Fed’s Texas Service Sector Outlook Survey for October put the general business conditions index at 1.8 after 6.3 in September.  Conditions in recent months have been trending lower, albeit unevenly. The six-month conditions index fell to 0.2 in October after 6.2 in September, its lowest since -0.2 in June 2016. The index for uncertainty was up to 18.0 from 15.4 and not that far below the series highs earlier this year.


One positive note in the report was an increase in revenues to 15.4 in October after 12.9 in September and up for a second month in a row. Employment also managed to eke out some gains. Full-time employment was up to 9.1 after 6.5, and part-time was up to 2.7 after 1.4. Both appear to be about on trend for hiring in 2019. Businesses are still adding workers, but more cautiously. Also a plus, the index for wages and benefits picked up the pace to 19.9 after 14.1 and is also running around the underlying trend for 2019. The index for hours worked declined for a second month to 1.7 in October from 2.4 in September.

Service business seemed to lose pricing power in October. The index for selling prices fell to -1.0, its first negative since -0.2 in February 2016. Input costs rose a little faster at 24.5 in October after 21.6 September. These are mild rises that are probably fluctuating with gasoline prices.

The Dallas Fed index has a reasonably good correlation with the ISM Non-Manufacturing Index. It points to the possibility that the ISM measure could decline further from the 52.6 in September and might even cross over into contractionary territory when that report is released at 10:00 ET on Tuesday, November 5..

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