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First Cut: Richmond Fed service sector revenues fall sharply in March

The Richmond Fed Survey of Service Sector Activity saw current revenues fall sharply to 1 in March after 26 in February. the index was the lowest since -1 in August 2016. Expected revenues declined to -6 after 28, and was a series low in March. The index for demand was down to 3 in March after 20 in February. Unlike the survey for manufacturing, the District’s service sector businesses are feeling the impacts of measures to contain the spread of COVID-19.

The index for employment declined to 3 in March after 20 in February. Upward pressure on wages eased to 28 in March from 35 in February. Finding workers with the available skills desired was at -11 after -22. The average workweek contracted at -4 after 2.  The labor market has loosened a bit in the District.

The index for prices paid went up to 3.34 in March even as prices for gasoline declined. This suggested that other costs are drivers of upward pressure at the moment. Prices received were also up at 2.56 in March from 1.57 in February. Businesses may be facing costs they cannot absorb and are being forced to hike prices.

The Richmond Fed’s index of service sector revenues correlates well with the ISM Non-Manufacturing Index (0.828). In February the ISM index rose to 57.3. It is hard to tell at this point, but the steep declines in the Richmond data and that from the New York and Philadelphia Fed’s suggest that the long 121 months of expansion for the ISM Non-Manufacturing Index could come to an end when that numbers is reported at 10:00 ET on Friday, April 3.

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