Service sector activity moderated in June, according to the latest survey by the Federal Reserve Bank of Richmond. Retail sales fell and big-ticket sales slackened, while shopper traffic rose more slowly than in May. Retail inventories declined. In contrast, revenues accelerated at non-retail services firms. Survey respondents were optimistic about business prospects for the next six months.
The number of employees in the service sector increased, as retail hiring remained on pace with a month earlier and non-retail hiring intensified. Average wages rose more quickly in June at non-retail services firms, while wage growth slowed at retail establishments.
Prices in the overall service sector grew at virtually the same pace as in May. Separately, retail prices advanced more quickly and price growth at non-retail firms slowed from a month ago. Compared to the current pace, survey participants expected prices to accelerate during the next six months.
Service sector revenues rose more slowly in June than in May. The index softened by four points to settle at a reading of 9. Hiring picked up however, with that index moving to 9 from 4. Average wage increases prevailed, with the index ending the survey period at a reading of 15, just one point below last month's indicator. Expectations for the business climate during the next six months remained positive, with that index also a point lower, at 12.
Retail sales weakened in June, with the index falling 59 points to a reading of -6. Big-ticket sales faded, softening the index to 6 from May’s reading of 25. In addition, shopper traffic moderated; that indicator finished fourteen points lower at 12. Retail inventories declined bringing the gauge to -8 from the previous reading of 35. Retailers’ outlook deteriorated from a month earlier, dragging the index to 4 from 20.
Employment at retail businesses remained on pace with a month ago; the index shed one point to settle at 9 in June. Average retail wage growth was lackluster however, with that index settling at 3 from the May reading of 19.
Revenues at services providers picked up this month, pushing the index to 13 from 7. In addition, employment strengthened. The index for the number of employees gained seven points, rising to 10 in June. Average wage increases in the subsector were more common; that indicator added two points to finish at 18. The expectations index remained solid at a reading of 14 this month, compared to 13 in May.
Price growth in the broad service sector was little changed from a month earlier, rising at an annualized 1.25 percent rate, compared to last month’s 1.21 percent pace. Within the sector, retail price growth quickened to 1.49 percent from May’s 1.08 percent rate. Price increases at non-retail services providers advanced at a 1.25 percent pace, somewhat below the May growth rate of 1.33 percent.
Looking ahead six months, survey participants expected prices would rise at an annualized 1.51 percent pace, whereas in May, they had expected 1.47 percent growth. Retailers anticipated annualized price growth of 2.15 percent. In May, they expected 1.33 percent price growth over six months. Non-retail services providers expected future price growth of 1.43 percent, compared with last month’s outlook for a 1.47 percent rate of rise.
Senior Economic Analyst