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First Cut: Dallas Fed service sector outlook turns bleak in March

The Dallas Fed’s Texas Service Sector Outlook for March mirrored the extraordinary plunge in the numbers in the Texas Manufacturing Sector Outlook. The index for general business conditions for the service sector descended to -78.8 in March after 7.0 in February and was by far a series low. The outlook for six months from now fell to -50.4 in March from 12.0 in February and was also a low for the series. Conversely, the uncertainty index rose sharply to 37.6 in March from 4.6 in February and was a series high.

The indexes for conditions are measures of sentiment that do not necessarily correspond to what the detail indexes in the report have to say. However, in March, signs of an abrupt and deep reversal of the long expansionary trend were startling in their severity. The survey index for revenues plunged to -67.0 in Mach from 14.0 in February, and revenue expectations were a gloomy -40.3 after 39.0.

Service businesses halted hiring and reduced hours. The index for employment fell to -23.8 in March from 6.1 in February. Upward pressure on wages and benefits fell to -12.4 after 17.7. And the average workweek was sharply cut with the index at -43.0 after 4.4.

The input price index was essentially flat at 0.1 in March after 26.6 in February, in part on reduced energy costs but also because of so few goods and services. The selling price index hit a bottom of -44.5 with absolutely no pricing power.

The Dallas Fed’s service sector general business conditions index has one of the better correlations (0.774) with the ISM Non-Manufacturing Index. While the ISM measure isn’t likely to see such a huge decline in activity, this is a solid signal that it could well turn in a sub-50 reading when the numbers are released at 10:00 ET on Friday, April 3.

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