The four District Bank surveys of service sector activity have been released with data for March. For three of four regions – Dallas, Richmond, and New York – the post-partial government shutdown bounce in February was just that. Activity eased off to what is more likely the underlying pace. On the other hand, the Philadelphia Non-Manufacturing Index continued its upward moment. If there is one underlying story, it is that service sector activity was broadly and sharply off in the closing months of 2018 and has not managed to recover that lost ground.
The service sector at the national level is probably still on track for modest expansion. However, condition are more temperate than in 2018 and probably more volatile on a month-to-month basis.
Among the service sector surveys, the Richmond Fed’s measure of revenues has the best correlation with the ISM Non-Manufacturing Index. The decline in that index to 5 in March from 17 in February strong suggests that the ISM index will soften from the 59.7 in February when the report is issued on Wednesday, April 3 at 10:00 ET.
The Dallas Fed’s general business activity index dropped to -4.4 in March from 2.0 in February. It has the second strongest correlation and backs up what the Richmond number signals.
The New York Fed’s current business activity index was also down to 10.8 in March from 13.7 in February. It has a weaker correlation to the ISM index but is another indicator of softer conditions for the broader service sector. The Philadelphia index does not correlate well to the ISM index and should not be read as too much of a contrarian sign for the ISM report.
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