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First Cut: May New York Fed services general business conditions remain consistent with deep contraction

The general business activity index for May in the New York Fed’s Business Leaders Survey eked out a small gain to -75.8 after the -76.5 in April. However, the level of the index is so negative that the tiny change is immaterial. Conditions in the New York District are still dire for the service sector. However, the index for the six-month outlook took a decided turn for the better at -4.9 in May after -30.7 in April. Relief efforts by fiscal authorities and the prospect of businesses opening up sooner rather than later have helped lift expectations to something nearing neutral after plunging in March.

The subindexes suggested that the business climate remained deeply recessionary at -92.9 in May after -94.3 in April and indicated a near standstill for service businesses. Unsurprisingly, the contraction in employment worsened to -53.5 in May after -38.7 in April and wages continued their downward trajectory at -18.9 after -11.4.

The index for prices paid showed prices rising slowly, but more quickly than the prior month at 13.3 in May after 8.7 in April. Energy prices have begun to level out and are not masking other price increases. On the other hand, the index for prices received fell to -19.8 after -13.2, and was the lowest since -18.8 in March 2009. These readings are consistent with recessionary conditions.

As the first of the District Bank surveys on the non-manufacturing sector, the New York Fed report will set the tone for expectations from the other four surveys – Philadelphia, Richmond, Dallas, and Kansas City. It also suggested that the ISM Non-Manufacturing Index could hold near the 41.8 in April when the May data is released at 10:00 ET on Wednesday, June 3.

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