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First Cut: New York Fed Business Leaders Survey for September markedly softer than recent months

The general business activity index in the New York Fed’s Business Leaders Survey fell to 4.9 in September from 9.1 in August, a level that indicates at most only modest expansion for the regional service sector. Moreover, the outlook for six months from now lost substantial ground with a reading of 11.7 in September after 25.0 in August, and was the lowest since 10.6 in October 2016.

While most of the subindexes in the report were down in September, it was generally only slightly. The exception was the index for the current business climate which plunged to -15.6 after 2.8 in the prior month. The climate hasn’t been seen as this soft since the -15.5 in June 2017. The index for the business climate six months from now also was sharply down at -18.6, its lowest reading since -53.6 in March 2009, shortly before the end of the recession was reached and expectations started to mend significantly.

The prices paid index cooled a little to 38.9 in September after 42.0 in August, reflecting further declines in energy costs, particularly for gasoline. Prices received remained more-or-less steady at 20.0 after 21.7, with businesses’ pricing power low, but present.

The New York report doesn’t have the strongest correlation with the ISM Non-Manufacturing Index, but it is sufficient that if other regional service sector surveys start to come in on the soft side, it could be worrisome for the national industry report when it is released at 10:00 ET on Thursday, October 3. So far the service sector hasn’t felt the pinch of slower global growth and erratic trade policy as much as manufacturing. The September numbers could signal that is changing, and not for the better.

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