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First Cut: New York Fed March service sector activity index lowest in over three years

The New York Fed’s Business Leaders Survey clearly indicated that the spread of the coronavirus was having a negative impact on activity. The current business activity index fell to -13.1 in March from 9.8 in February and was the worst reading since -13.2 in October 2016. The index for future activity plunged to -13.7 from 35.1 and was its lowest since -25.4 in March 2009. The New York Fed took a supplemental survey for the period March 2 to 10 that reflected slight-to-significant conditions for “overall net effect on your bottom line” for over half of the survey respondents.

The business climate showed a similar deterioration as activity with the index down to -29.0 in March after -2.0 in February.  The future business climate index dropped to -31.4 from 9.2.

Although future employment was down sharply, the index for current employment was up to 4.9 in March after 3.1 in February and wages were up to 46.5 after 45.3. It may be that service businesses are taking advantage of filling open spots if workers with the right skills are coming available. It is possible that a consequence of impact of the coronavirus will be some relief for employers looking for qualified candidates if they can manage to capture some of those laid off.

The index for prices paid was down to 36.9 in March after 48.4 in February, in part on the recent declines of energy prices. The index for prices received declined to 20.6 after 26.7, with pricing power limited.

The New York Fed’s activity index for the service sector has only a moderate correlation with the ISM Non-Manufacturing Index (0.647). As the first of the monthly regional reports on conditions, however, it does suggest that the national index is going to see an abrupt slowing in its long string of expansionary readings.

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