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First Cut: Philadelphia Fed services index revives a bit in May, but still deeply recessionary

The general business activity index in the Philadelphia Fed’s Non-Manufacturing Business Outlook Survey for May rose to -68.6 after plunging to -96.4 in April. Conditions in the service sector for the District remained deeply in recession, although it would appear that some businesses have managed to increase activity enough to lift it off the near-total shutdown in April. The outlook for six months from now improved to -10.0 in May after -45.8 in April as businesses anticipated improved conditions, if still mildly contractionary.

The index for sales revenues improved to -50.8 in May from -87.9 in April, less bad although not anywhere in reach of renewed expansion. The new orders index rose to -32.4 from -67.2 with no strength returning as yet. The unfilled orders index rose to -6.3 in May after -18.8 in April. With no orders coming in, there are no backlogs to be filled.
The indexes related to the labor market were also less negative in May, but without much indication that the situation was actually improved, just no longer declining.

The index for full-time employment rose to -23.4 from -47.5 in April, while part-time was up to -37.3 in May after -58.9. Some of this may be after government paycheck protection funds allowed some businesses to bring workers back on payrolls. The index for wages and benefits gained to -14.9 after -35.7, likely for similar reasons. The contraction in the workweek was less drastic at -36.9 in May from -50.7 in April.

The index for prices paid declined again to -6.2 in May after -0.4 in April with businesses dealing with problems in getting goods along the supply chain. The index for prices received was up to -11.2 in May after -15.4 in April but was consistent with little pricing power and the need to compete for what business there was.

The Philadelphia Fed services index has a weak correlation (0.447) with the ISM Non-Manufacturing Index. It is hard to read much into the increase for May beyond that this may indicate conditions are somewhat improved at the national level as services adapt to restrictions in movement to stay viable during the COVID-19 pandemic. The ISM number will be reported at 10:00 ET on Wednesday, June 3.

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