Although not as drastic as the plunge in the New York Fed’s Empire State Manufacturing Survey for June, the Business Leaders Survey points to slower conditions in the region’s service sector as well.
The index for general business activity fell to 5.8 in June from 20.6 in May. The nearly 15-point decline is in part a correction after a sharp rise in the prior month. However, that is not the entire story and conditions seem to be fundamentally slower in June. The index for the business climate fell to -1.2 in June from 10.7 in May when the climate briefly revived, possibly front-leading activity before tariffs were imposed. The index for future business activity fell to 19.8 in June from 33.1 in May and is back to the readings of late 2018 when confidence in future expansion had worsened.
There was some softening in conditions for employment at 7.7 in June after 12.2 in May but his suggested a return to form for modest hiring, not a deterioration. Businesses are still experiencing upward pressure on wages with the index up to 41.1 in June from 37.1 in May and in line with the necessity to offer better pay to attract and retain workers.
Upward pressure on prices paid (46.7 after 50.3) and received (18.7 after 28.1) both eased off, in part on recent declines in energy prices.
Plans for capital spending were also down (10.8 after 15.5), also suggesting that service sector businesses were turning more cautious about spending.
Also like the New York Fed’s manufacturing survey, the survey of the service sector does not necessarily correlate strongly with the ISM Non-Manufacturing Index. However, it does raise the question about overall softer economic activity closing out the second quarter.
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