Fifth District Survey of Service Sector Activity

Sept. 22, 2015 10 a.m.

Service Sector Activity Moderated in September; Employment Softened

Overview

Service sector activity moderated in September, according to the latest survey by the Federal Reserve Bank of Richmond. Retail sales increased modestly, bolstered by stronger big-ticket sales. Shopper traffic rose solidly, but at a slower pace than in August. Retail inventories built up more quickly. Non-retail services firms' revenues slowed compared to the previous month. Survey participants were optimistic about demand for their goods and services during the next six months.

Hiring in the service sector faltered in September, according to surveyed firms. Retailers reduced their number of employees and hiring tapered off at other services providers. Growth in average wages slowed from the pace in August.

Prices rose at a modest pace this month. Survey participants expected slightly faster price growth during the six months ahead.

Service Sector

Service sector revenues rose at a restrained pace in September, with the index losing 20 points from last month's reading to settle at 10.

In addition, hiring weakened, with that indicator falling to 5 from 18. Average wage growth slowed slightly; the index finished six points below the August reading at 20. Looking to the next six months, executives were optimistic, although their expectations were more subdued this month. The index for expected demand fell to 24 from 32.

Retail Firms

Retail sales softened compared to a month ago, with the index dropping 28 points to 16. The big-ticket index jumped to 20 this month from a reading of 1 last month, while shopper traffic diminished slightly, bringing that index down 15 points to 39. Inventories grew more rapidly than a month ago, pushing the gauge up 23 points to 35. Retailers' outlook for the next six months was bright despite pulling back from their August expectations. The index for expected demand settled 12 points lower at 33.

Merchants trimmed their payrolls in September. The index for the number of employees dropped to −19 from the previous month's reading of 5. Average wages rose on pace with last month, keeping the index at 30 for a second time.

Services Firms

Revenue growth slowed at non-retail services firms. The index shed 18 points to finish at 10 this month. Services firms also slowed hiring, reducing that indicator to 8 from its month-ago reading of 20. Average wages increased moderately at services-providing firms. The index settled seven points lower at 19.

Services providers expected good business conditions in the six months ahead, although their outlook was more restrained than in August. The index dropped to a reading of 23 from 31.

Prices

Overall service sector price growth moderated to an annualized rate of 1.18 percent in September, compared to growth at 1.53 percent in August. Retail prices rose at an annualized 1.25 percent pace compared to 1.98 percent a month ago. Non-retail services providing firms' prices increased at an annualized 1.17 percent pace, following growth at 1.49 percent in the prior month.

Survey participants' expectations for the next six months were for slightly faster price growth. They looked for overall service sector prices to rise at an annualized 1.65 percent rate. Separately, retailers expected a 2.01 percent rate of increase in prices and executives at other services firms looked for prices to grow at a 1.60 percent rate. Last month's outlook was for overall service sector price growth at 1.85 percent. Retail price expectations were for 2.24 percent growth over six months, while non-retail services providers anticipated prices would rise at a 1.81 percent rate.

Survey Participation, Report, and Data Questions

Jeannette Plamp
Associate Regional Economist
(804) 697-8152