Fifth District Survey of Service Sector Activity

Jan. 24, 2017 10 a.m.

Service Sector Strengthens; Survey Respondents Optimistic About Future

Overview

Service sector activity strengthened in January, according to the most recent survey by the Federal Reserve Bank of Richmond. Revenue increases were prevalent, particularly among retailers. Big-ticket sales remained robust, and shopper traffic increased. Retail inventories were little changed. Survey participants were upbeat about demand for their goods and services during the next six months.

Employment measures in the sector continued to improve. The number of employees rose modestly, while wage gains in the sector persisted.

On average, service sector prices moved up more rapidly than a month earlier, particularly in retail. Survey participants anticipated further acceleration in the six months ahead.

Service Sector

Revenues improved more broadly in the service sector in January, pushing the index to 15 from last month's reading of 4. Hiring expanded only modestly, with the index slipping four points from last month's reading to settle at 8. In contrast, average wage gains were pervasive, holding the index at a reading of 24 for a second month.

Looking ahead six months, survey participants were optimistic about business conditions. The index for expected demand added three points in January to finish the survey period at 38.

Retail Firms

Retail sales strengthened this month, with the index climbing 10 points to a reading of 40. Big-ticket sales stabilized at a robust index of 32, just three points below the previous reading. In addition, shopper traffic increased more broadly, driving the index to 36 from 29. Merchants' inventories were little changed; the indicator shaved one point off December’s reading to end at 2. The index for expected demand remained at a healthy, though lower, reading of 51 in January, compared to December's index of 72.

Hiring in the retail sub-sector was weak, albeit improved from a month ago. The index rose 13 points, moving into positive territory, but only to a reading of 7. Average wage growth moderated, with that gauge losing 27 points to finish at 22.

Services Firms

Revenue increases at services-providing firms were more prevalent in January than a month ago. The index shifted up to a reading of 11 following a flat reading of 0 in December. Fewer services providers indicated that they increased hiring in January, softening the index to 8 from 15. However, average wage growth continued, bringing the indicator up five points to a reading of 24.

Executives at services firms increasingly expected greater demand for their services in the months ahead. The expectations index rose to 36 from last month's reading of 28.

Prices

Prices in the overall service sector accelerated to an annualized rate of 1.65 percent in January, following December's 1.31 rate of rise. Within sub-sectors, retail prices increased more rapidly than a month ago, reaching a 2.79 percent annualized rate, well above December's 1.51 percent pace. Other services providers' prices also rose more quickly, moving up at a 1.45 percent annualized pace this month, compared to 1.27 percent a month earlier.

Overall service sector prices were expected to move up more rapidly during the next six months, when compared to last month's expectations. The overall outlook was for an annualized pace of 1.84 percent. In December, a 1.75 percent rate of increase was anticipated. Retailers looked for their prices to climb at a 3.02 percent annualized rate in future months, whereas in December, they expected a 1.98 percent rate. At other services firms, expectations for pricegrowth were more modest than previously anticipated. Survey respondents expected prices would increase at a 1.63 percent pace, compared to their December expectation for 1.71 percent growth.

Index Table

Survey Participation, Report, and Data Questions

Jeannette Plamp
Associate Regional Economist
(804) 697-8152

Economics and Building
Find Out More About Business Activity in the Fifth District

For state-level information on business activity, please refer to the monthly reports for Maryland, and North and South Carolina.