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First Cut: Dallas Fed service sector conditions slower in February

The general business conditions index in the Dallas Fed’s Texas Service Sector Outlook dipped to 7.0 in February after 11.1 in January.  The decline was probably not a worrisome one, rather a return to a more modest underlying trend after two months of higher readings. The six-month outlook index dipped to 12.0 in February after two months at 17.6. Expectations are somewhat less than they were, but better than most of 2019. The uncertainty index declined to 4.6 in February after 7.5 in January suggested that volatility in the outlook had diminished.

The detail indexes indicated some slowing in activity without substantive deterioration. Revenues dipped to 14.0 in February after 18.8 in January. Employment declined to 6.1 after 8.4, and wages and benefits were down to 17.7 after 19.4. Hours worked increased a bit to 4.4 after 3.3.

Input prices were little changed in February at 26.6 after 27.0 in the prior month. Selling prices were down to 8.0 after 16.9. Energy costs are helping to keep input costs low and selling prices have little upward momentum.

The Dallas Fed general business conditions index has a decent correlation with the ISM Non-Manufacturing Index (0.774). While the month-to-month decline hinted that the ISM measure might be down from the 55.5 in January, it  has to be read in context with other District Bank surveys of services. So far, these are pointing in the opposite direction.


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