Activity in the service sector grew moderately, according to the latest survey by the Federal Reserve Bank of Richmond. Retail activity improved in February, as big-ticket sales escalated sharply and shopper traffic rose. However, inventories also grew more quickly than a month ago. Non-retail revenues advanced more slowly than in January.
In service sector labor markets, hiring was light while wage increases were more widespread across both retail and non-retail businesses.
The pace of price growth in the broad service sector nearly matched that of a month earlier, as slower growth in retail prices largely overshadowed a pick-up in non-retail prices. Survey participants expected a moderate rise in the rate of price growth during the next six months.
Service sector revenues remained solid in February, with the index shaving two points from January's reading to settle at 11. Hiring inched up, pushing the index to 3 from 0, as cuts in the retail sub-sector waned. Average wages rose broadly, bringing that index to 14 from last month's reading of 7. In addition, the expectations index jumped six points to 16, as more survey respondents looked for better business conditions during the next six months.
Retail activity strengthened in February, with the sales revenues index gaining twenty-seven points over last month's reading to end at 19. The index for big-ticket sales also moved into positive territory, finishing the survey period at 27, compared to January's reading of −32. Adding to the strength, shopper traffic rebounded, with that index rising to 15 from the previous reading of 4. Retail inventories built up quickly however, pushing the index nine points higher in February, to 27. Merchants remained guarded about future sales; the index for expectations over the next six months slipped three more points, ending at −9.
In retail labor markets, job cuts tapered off, leaving the index for the number of employees at −4, nine points above January's reading. Average wage increases broadened, with that index climbing to 16 from the previous reading of −1.
Revenues at non-retail services firms advanced more slowly than a month ago. That indicator shed twelve points, settling at 8. The index for the number of employees matched last month's reading of 4, while the reading for average wages gained six points in February, ending at 14.
Looking ahead six months, non-retail services providers anticipated solid prospects. The index for expected demand rose seven points in February, ending the survey period at 20.
Prices in the broad service sector increased at an annualized 1.38 percent rate, nearly matching January's 1.40 percent pace. In services subsectors, retail prices slowed to a 1.10 percent annualized growth rate, and prices at non-retail services providers increased at a 1.41 percent pace. A month ago, retail prices rose at a 1.69 percent rate and non-retail services prices moved up at a 1.29 percent rate.
For the coming six months, survey respondents expected price growth would pick up the pace to a 1.80 percent annualized rate across the sector; in January, they looked for future annualized price growth at a 1.75 percent pace.
Merchants looked for prices to rise at an annualized 1.52 percent rate, compared to their previous outlook for 1.56 percent growth. Non-retail services providers anticipated price increases at a 1.82 percent pace over the next six months, compared to their month-ago expectation for 1.76 percent future price growth.
Associate Regional Economist