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First Cut: Richmond Fed service sector revenues rose fastest in 18 months

The Richmond Fed Survey of the Service Sector revenues index reached 26 in February, a sharp rise from 10 in January and the highest since 26 in August 2018. However, the index for expected revenues backed down at 28 in February after a rise to 42 in January. The District’s service sector is expanding modestly overall, if with the occasional month like February in which a burst higher is followed by a few months of less elevated expansion.

If the details of the report are a bit uneven, nonetheless the fundamentals for the District’s service sector seem solid.

Service sector demand rose to 29 in February from 16 in January and was the highest since 33 in July 2018.

Employment expanded a bit more rapidly at 20 in February after 16 in January but seems more-or-less on trend. However, workers with the right skills are scarce at -22 after -11. Wages continued to rise moderately at 35 in February after a brief uptick to 50 in January that may have included some mandated increases to minimum wages.  The average workweek expanded only slightly at 2 after 14.

The index for prices paid rose to 3.08 in February after 2.70 in January. Input costs for energy were down, so it represented other sources of upward price pressure. Prices received  moderated to 1.57 in February after 1.96 in January with little pricing power evident after the normal end- and start-of-year hikes in December and January.

The Richmond Fed’s index of service sector revenues as a strong correlation with the ISM Non-Manufacturing Index (0.828) and is a good signal of the direction of the national number. It suggests that the ISM index will rise from the 55.5 in January when it is reported at 10:00 ET on Wednesday, March 4.

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