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First Cut: Richmond October service sector revenue index highest in 14 months

The revenue index in the Richmond Fed’s Survey of the Service Sector jump to 24 in October after 6 in September and was the highest since 26 in August 2018. Some of that may be due to the end of the federal fiscal year and new contracts going into effect. Nonetheless, it is a welcome increase in the near term. The outlook, however, is not so rosy. The expected revenues index fell to 15 in October from 20 in September and was the lowest since 13 in January 2013. Taken together, it is hard to see the improvement in current conditions are more than a one-off.

The index for demand did improve to 17 in October after 13 in August and September, although this is not a large increase. The index for employment narrowed further to 3 in October from 5 in September and was the lowest since 1 in March 2014. Wages rose more slowly than in the prior month at 26 after 38. This suggested that competition for available jobs in the region may be heating up while business is cooling down.

Prices paid declined along with lower energy prices, particularly motor fuels. The index was down to 2.37 in October from 2.63 in September and was the lowest since 2.27 in August 2018. Pricing power actually improved a bit with prices received at 2.28 from 1.46, but this may have been normal increases related to new contracts rather than being able to command higher prices generally.

Among the regional surveys of service sector activity, the Richmond Fed’s revenue index has a solid correlation with the ISM Non-Manufacturing Index. The national measure has been sliding lower — if a bit unevenly — in recent months. The Richmond report might suggest an increase from the 52.6 reported for the ISM in September. However, I would be cautious in interpreting the jump in the Richmond index as a signal of stronger activity for the ISM number when it is released at 10:00 ET on Tuesday, November 5.


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