The four District Bank surveys of the service sector present a mixed picture of conditions in the non-manufacturing sector in October. Unlike the manufacturing surveys which are a reasonably good signal of where the ISM Manufacturing Index might be headed, the data out of the New York, Philadelphia, Richmond, and Dallas Feds doesn’t as consistently line up behind the national data in the ISM Non-Manufacturing Index.
Among the four reports, it is data from Dallas and Richmond that seems to have a decent correlation with the ISM number. Unfortunately, these are telling two very different stories. The Dallas general business activity index fell 4.5 points in October to 1.8, hinting that conditions are weak for services there. The Richmond Fed’s index of revenues – there is no broader conditions index in the Richmond survey – jumped 18 points to 24 in October for its highest reading in over a year. Interestingly, the Dallas revenues index was also up at 15.4 in October from 12.9 in September. I speculate that revenues probably got a boost after contracts were signed in late September at the end of the government’s fiscal year. If so, then the increase in revenues was a one-off that isn’t going to be repeated in November.
In spite of the higher correlation of the Richmond index with the ISM Non-Manufacturing Index, I think the tone of the other reports is probably a better indication of the direction of the national number. When the October ISM report is released at 10:00 ET on Tuesday, November 5, there’s a good chance it will remain above the 50-mark that means continued expansion for services. However, the reading could be only narrowly for growth. The general trend seems to be heading downward in recent months in spite of some seesawing.
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