Activity in the broad service sector strengthened in August, according to the latest survey by the Federal Reserve Bank of Richmond. Revenues rebounded at non-retail services firms, outweighing continued softness at retail establishments. Retail sales declined, though by less than a month ago. Big-ticket sales weakened and shopper traffic diminished. Retailers’ inventories declined, though more slowly than in July. Expectations for customer demand in the six months ahead improved in the overall service sector.
Employment in the sector remained anemic. The number of employees at retail business fell, while hiring at non-retail services providers grew only slightly. Average wage growth strengthened.
Service sector price growth slowed somewhat in August. For the six months ahead, survey participants expected slower price increases than they anticipated in July.
Revenues in the overall service sector rose in August, pushing the index to 14 from July's reading of −6. However, hiring in the sector remained nearly flat, with that index dropping a point to settle at 1. In contrast, average wages picked up to a reading of 13, compared to 7 a month earlier. Survey participants looked for greater customer demand during the next six months; the index tacked on eight points to end the survey period at 19.
Retail activity generally waned in August. Sales revenues contracted, though by less than a month ago; the index settled at −15, an improvement of seven points over July's reading. Additionally, big-ticket sales weakened, with the index fading to −6 after a posting of −5 in July. Retail inventories dropped by less this month, with that index at −9 compared to −12. Shopper traffic also declined, leaving the index at −17, one point below the month-ago reading. Retail merchants' generally unenthusiastic outlook for demand for their goods in the six months ahead was nonetheless improved from a month ago. The index reversed sixteen points to finish at −13.
Employment declined at retail businesses this month, with the index ending at −10 following the previous reading of −14. Average retail wages jumped up, however, with that index gaining eleven points to end at a reading of 12.
Revenues rose sharply at non-retail services firms in August, with the index spiking to 19 from the July reading of −3. Hiring remained tepid, however, with that index shedding a point to settle at 3 this month. Average wages regained strength, drawing the index up to 13 from 9. Moreover, the expectations index rose eight points to a reading of 25.
Prices in the overall service sector grew at a slower, annualized 1.00 percent rate following July's 1.21 percent rate. Retail prices advanced more quickly in August, increasing at a 1.19 percent rate, compared to last month’s 1.00 percent growth. At non-retail service sector firms, prices grew at a 0.97 percent pace after July's annualized 1.22 percent rate.
Looking to the next six months, survey respondents anticipated a 1.46 percent annualized rate of price growth in the overall service sector; in July the outlook was for 1.63 percent. For the retail sub-sector, expectations were for 1.50 percent annualized price growth, following last month’s anticipated 1.91 percent pace. At services-providing firms, expectations were for 1.49 percent price growth, whereas in July, respondents expected a 1.56 percent rate.
Senior Economic Analyst