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First Cut: New York Fed service sector activity improved in February

The New York Fed’s Business Leaders Survey for February showed the service sector’s general business activity index picked up to 9.8 from 3.7 in the prior month. The six-month outlook also improved to 35.1 from 31.9, adding to a substantial gain int he prior month.

The business climate was seen as slightly less supportive at -2.0 in February after 6.9 in January, but the decrease was relatively small and the dip is likely to be short-lived.

The index for employment narrowed to 3.1 in February from 4.8 in January. The slower pace of hiring may be as much from lack of workers to fill open spots as it is a decision to hire less. The sharp rise in the index for wages to 45.3 in February from 36.4 in January argues for the former rather than the latter, although some of that may be mandated increases in minimum wages.

The index for prices paid rose to 48.4 in February, but isn’t much changed from the 47.3 in January or 47.1 in December. However, it is notable that the declines in energy costs have not been slowed gains in input costs. The index for prices received suggested that service businesses have some pricing power with a rise to 26.7 in February from 22.4 in January.

The New York Fed’s general business activity index has only a middling correlation with the ISM Non-Manufacturing Index (0.647).  However, if it is backed up by the other District Bank surveys for the service sector when they are reported next week, it will be a solid signal that the ISM number could rise from the 55.5 in January when the February data is released at 10:00 ET on Wednesday, March 4.

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