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First Cut: Dallas Fed service sector index off series lows in May

The Dallas Fed’s service sector general business conditions index rose to -41.7 in May off the series lows of -81.7 in April and -78.8 in March. While remaining weak and consistent with recession, the numbers are improved. The index for six months from now was up to -11.1 in May after -27.1 in April and suggest that while activity was expected to remain soft, it would be closer to recovery. The uncertainty index declined to 26.2 in May after 43.2 in April, still for a risky outlook but not quite so bad as the prior two months.

Dallas’s service sector revenues index was up to -28.1 after -65.4 in April. Expected revenues returned to a positive 6.6 in May after -16.3 in April and also suggested anticipation of a recovery in activity.

The indexes associated with employment remained feeble, if less so. In May, the employment index was -10.4, and more than retraced the decline to -35.2 in April. The same was true of the index for part-time employment which rose to -14.5 after -33.0. Wages and benefits were on the down side in May at -7.2 but better than the -21.7 in April. The index for hours worked continued to contract at -9.4 in May but was far less than the -48.2 in April.

The index for input prices was up to 9.9 in May after -3.8 in April. Some of this may have captured the uptick in gasoline prices in May. Businesses remained without much pricing power. The selling prices index was at -19.7 in May after -47.8 in April.

The Dallas Fed’s general business activity index has a decent correlation (0.774) with the ISM Non-Manufacturing Index. So far the available District Bank surveys of non-manufacturing have pointed to a higher reading for the ISM index from the 41.8 in April when the May numbers are released at 10:00 ET on Wednesday, June 3.

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