Fifth District Survey of Service Sector Activity

Nov. 25, 2014 10 a.m.

Service Sector Hiring and Wage Increases Strengthened; Revenue Growth Remained Solid

Overview

Service sector activity increased in November, according to the latest survey by the Federal Reserve Bank of Richmond. Retail sales grew robustly as big-ticket sales accelerated. Shopper traffic rose, although more slowly than a month earlier. Retail inventories declined slightly. Looking ahead, survey participants expected good business prospects during the next six months.

Employment in the service sector increased rapidly, with particular strength in retail hiring. Average wages rose more quickly overall.

Prices in the broad service sector rose nearly on pace with a month ago. Survey respondents looked for slightly faster increases over the next six months.

Service Sector

Service sector revenue growth remained solid in November, with the overall revenues index at 25 following the October reading of 27. Employment in the service sector grew robustly, driving the index up 10 points to 24. In addition, average wage increases were more prevalent this month, pushing that indicator up four points to 22. Survey participants were confident about business prospects for the six months ahead. The expectations index ticked up one point to 28 this month.

Retail Firms

Retail sales jumped in November, with stronger big-ticket sales. The indexes climbed to 37 and 19 from their previous readings of 21 and 7. However, shopper traffic rose at a slower pace, with that index losing eight points to finish the survey period at 16. Inventories declined slightly; the index slipped to −3 from its month-ago reading of 1. Retailers were decidedly more enthusiastic about sales in the next six months. The index for expected demand added 28 points to end at 39.

Retail merchants added employees at a faster pace in November, doubling the previous month's index for the number of employees to a reading of 28. Average retail wages continued to grow at a healthy pace, although at a reading of 24, the index was eight points below the October indicator.

Services Firms

Revenues at services providing firms grew solidly this month, with the index at 23 compared to the prior reading of 28. Non-retail services firms increased the pace of hiring, pushing that index to 24 from 15. Average wage increases were more prevalent, bringing the indicator six points higher to 22. Services providers remained optimistic about business conditions for the six months ahead. The index for expected demand for services settled at 26 from the October reading of 30.

Prices

Service sector prices increased at an annualized 1.62 percent pace in November, nearly matching last month's 1.61 percent growth rate. At retail businesses, the pace of price growth slowed slightly, to an annualized 1.90 percent rate. In October, retail prices rose at a 2.05 percent rate. Prices advanced at a 1.57 percent rate at non-retail services firms this month, compared to the previous 1.52 percent growth rate.

In November, survey respondents anticipated an overall 1.99 percent annualized rate of growth in prices across the broad service sector during the next six months. Within the sector, the outlook was for 1.99 percent price growth at both retail and non-retail businesses. In October, overall expectations were for 1.82 percent annualized price growth. Separately, retailers looked for a 1.93 percent rate of growth in prices in last month, and non-retail services providers anticipated a 1.80 percent growth rate in prices.

Survey Participation, Report, and Data Questions

Jeannette Plamp
Associate Regional Economist
(804) 697-8152