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First Cut: Richmond Fed Service Sector Survey for January dips in post-holiday period

The Richmond Fed’s Survey of Service Sector Activity reported its revenue index down in January compared to December but similar to those in November (6 in January, 10 in December, 5 in November). This suggests that service businesses got a bit of a year-end boost – possibly related to a strong year-end holiday period but also hinting at some activity trying to avoid higher prices in the coming year. The reading for the demand slipped (11 in January, 20 in December, 13 in November) echoing the direction of revenues. Local conditions were sharply lower (-8 in January after 9 in December) and may be due in part to the partial federal government shutdown which would heavily impact the northern Virginia area of the District.

Nonetheless, businesses reported hiring about unchanged (4 in January versus 3 in December). Upward pressure on wages eased a bit but remained elevated (29 versus 34). There was still a distinct lack of workers with desired skills available (-20 versus -18) which probably contributed to the expansion in the workweek (4 versus 0).

Unsurprisingly, prices paid eased to 2.83 in January after 3.03 in December due to the continued slide in gasoline prices. Pricing power declined as prices received fell to 1.82 in January from 2.51 in December.

Overall, conditions in the Richmond service sector were modestly expansionary with a note of caution regarding future activity with the expectations index for revenues falling to 18 in January from 37 in December.

Among the regional District Bank surveys of non-manufacturing activity, the Richmond Fed revenues index has a fairly strong correlation (0.837) to the ISM Non-Manufacturing Index. This suggests that ISM number could decline slightly from the 57.6 in December when it is reported at 10:00 ET on Tuesday, February 5.

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