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First Cut: June New York Fed services business activity started to improve, but still deep in contractionary territory

The New York Fed’s Business Leaders Survey’s general business conditions index rose to -40.0 in June, a significant improvement over the -75.8 in May and -76.5 in April when many of the District’s service sector businesses were forced to close amid the COVID-19 pandemic. Conditions were still deep in recession in June, but not as much with some restrictions on public interactions lifted. Service sector conditions were expected to be in expansion in the near future with the six-month outlook index up to 24.8 in June from -4.9 in May. While the current business climate index remained mired down at -82.3 in June after -92.9 in May, some positive developments are helping.

Service sector employment in the regional survey has not changed much but the June data was a bit less negative. The employment index was up to -43.2 after -53.5 in May. The June wages index was up to -10.5 after -18.9 in the prior month. Part of this may be related to the availability of government relief measures that allowed some workers to be rehired, although not all of these will return to full-time status.

The index for prices paid was up to 20.5 in June after 13.3 in May and probably reflected increases in food and energy. Prices received remained in contraction at -15.0 in June after -19.8 in May with very little pricing power to pass on higher costs.

The general business activity index for the New York service sector has a mildly positive correlation (0.652) with the ISM Non-Manufacturing Index. As the first regional report on conditions in the service sector, it suggested that the ISM measure could see another month of modest gains in June when the numbers are reported on Friday, July 3 at 10:00 ET. This would be a second month higher after the near-term bottom of 41.8 in April, but still well into contractionary territory.

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