“Activity in the region’s service sector declined at an accelerated pace,” said the New York Fed this morning in its January 2021 survey of service sector companies in its district. The headline Current Business Activity index dropped five points to -31.8, the worst assessment of the service sector since June, which has now been on the decline for the 11th month in a row; and the decline has steepened over the past three months. Values above the blue line (zero) indicate improvement, values below the blue line indicate deterioration in this diffusion index (historic data via YCharts, current data via NY Fed):
The service sector, including finance & insurance, in the New York Fed’s district, reports rising prices and wages, despite further deterioration in business. Weirdest economy ever.
Only 18.6% of the service sector executives in the survey reported that conditions improved during the month, and 50.5% reported that conditions worsened. The remainder reported “about normal” conditions (18.6% minus 50.5% = index value of -31.8).
The New York Fed’s district includes New York State, Northern New Jersey, and Fairfield County, Connecticut. This is where the finance & insurance sector is concentrated, among many other services. Services in general account for nearly 70% of the overall US economy.
The New York Fed sends the survey on the first business day of every months to the same pool of 150 top executives of services companies in its district, who respond based on their own company’s data. The names of the companies and executives are not released.
The business climate index has been abysmal since March. It’s based on the question, “How would you rate the current business climate for this time of year?” The index had dropped to -93 and -94 in April and May, the worst in the data going back to 2004, with nearly all executives reporting at the time that the business climate had worsened.
After getting less bad, so to speak, from July through December, but remaining at abysmal levels, the business climate in January worsened again, with the index dropping to -63.3. Of the executives, 12.2% said the business climate was better than normal, and 75.6% said it was worse than normal (historic data via YCharts, current data via NY Fed) :
Job cutting continues at these companies in the service sector. The index for the number of employees fell to -17.6, indicating a decline at the fastest clip since July, with only 11.8% of the companies reporting that the number of employees increased in the month, and with 29.4% reporting that the number of employees fell. This was the second month in a row that the decline in employment has steepened compared to the prior month (historic data via YCharts, current data via NY Fed):
Capital spending continued to fall, but at a slower pace. With the index at -14.2 in January, 14.7% of the executives reported that they increased capital spending, and 28.9% reported that they cut capital spending.
But wages are rising, despite declining employment. The index for wages rose to +19.9, the fastest increase since March: 26.2% of the companies reported rising wages and 6.3% reported declining wages; the remainder reported no change. It was only during April, May, and June that companies reported overall declining wages:
And input prices rose. The index for prices paid in the service sector in the New York District never actually declined during the Pandemic, though price increases came to a near-halt in April. Since then, price increases have picked up momentum. In January, the index rose to 38.9, indicating the fastest price increases since February 2020, with 42.5% of the companies saying they paid higher prices than the month before, and just 3.6% saying they paid lower prices
And selling prices rose 8 points to 7.4, “the first sign of any significant selling price increases since the pandemic began,” the New York Fed said triumphantly, because inflation is what the Fed wants more than anything:
So the weirdest economy ever. The massive service sector in the overall US economy is of course what hasn’t fully recovered yet. The stimulus money sent to consumers drove spending on goods to historic highs, many of which are imported, with spending on durable goods spiking from record to record. But consumer spending on services continues to lag, and in November dropped again, and was down nearly 5% from a year earlier:
Wolf Richter an entrepreneur based in San Francisco with over twenty years of C-level operations experience, including turnarounds and start-ups. Among other degrees, Wolf earned an MBA from the University of Texas at Austin. He airs his often cynical or tongue-in-check economic, financial, and business observations on ...
