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First Cut: Richmond Fed service sector revenue index continued mild expansion in September

The Richmond Fed’s Survey of the Service Sector for September showed the current revenues index at 6, the same as in August. The expansion of revenues was lackluster, but did not deteriorate further from recent months. The index for expected revenues fell to 20 in September from 28 in August and was the lowest since 25 in January when the cut off of money from federal contracts and lack of an expected resumption during the partial shutdown severely affected the outlook. The last time the index was lower was the reading of 19 in June 2016.

Although the service sector has not experienced the same declines and unevenness as the data for the manufacturing sector, conditions have clearly deteriorated in recent months and worries about the future increased.

On a positive note, while hiring for the District’s service business is soft (5 in September after 9 in August), there is still a lack of workers with the right skills (-13 after -12) and upward pressure on wages increased in September (34 after 28).

The index for prices paid fell to 2.63 in September from 2.98 in August, probably related to energy costs, particularly for gasoline. Prices received were rising more slowly as well (1.46 after 1.57).

The Richmond revenues index correlates well with the ISM Non-Manufacturing Index. It hints that the 56.4 reading for August for the ISM number could be maintained. Other District Bank surveys for the service sector in September are mixed. The release of the Dallas Fed’s Texas Service Sector Outlook — which has a decent correlation with the ISM report — could be more useful in determining the tone of the national data.

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