US DATA: May Dallas Fed Services Activity Shows Stabilization, Weak Retail Sales

May's Texas Service Sector Outlook Survey conducted by the Dallas Fed implied a contraction in activity in the region, albeit at a less negative pace than earlier in the year. Retail sales were a surprisingly negative category amid the overall stabilization.

• The general business activity index rose to -10.1 (from -19.4 prior), while the 6-month outlook up to -0.3 from -16.0. Both were the strongest readings since February, though that contrasts with positive readings in late 2024.
• There's evidence that tariff-related developments (most notably the May 12 announcement that the US and China would hold off on punitive levies for the time being - the survey was conducted May 13-21) saw a sharp drop in the outlook uncertainty index, to 18.7 from 40.5. Various other subcategories readings were little changed, including employment.
• However, there were signs of weakness in other key categories. The revenue index, "a key measure of state service sector conditions" per the Dallas Fed report, fell 9 points to -4.7, "suggesting revenue contracted slightly" (albeit future revenue/employment/capex expectations were positive).
• And the retail sales reading (which is a subsection of the overall service sector survey) showed a sharp contraction in activity, dropping 33 points to -30.5, weakest since April 2020, with much more mixed forward expectations than seen in the broader survey.
• Inflationary pressures appeared to abate sharply. Current prices paid pulled back toa 6-month low  20.5 (32.5 prior), with received reversing April's rise to dip to 5.2 (8.4 prior).