The Econoday service sector activity index (ESSAI)* for August falls to minus 3.2, once again showing softening in activity after the brief positive reading of 5.6 in July. Four of the six Fed district bank surveys for the service sector decreased in August (New York, Philadelphia, Richmond, and Kansas City). The rise in two (Dallas and Chicago) was modest. Half of the survey component indexes showed contractionary conditions (Philadelphia, Richmond, and Kansas City). The other half reflected slight to modest expansion (New York, Dallas, and Chicago).
Input prices in August were on the rise again. The Econoday service sector prices paid index (ESSPPI)# rose to 37.3 in August from 35.7 in July, although July is below 38.3 in June. The shock to energy prices after the war on Iran started has eased but energy costs remain elevated and volatile.
The Econoday service sector employment index (ESSEI)## slipped to 1.9 in August after 5.5 in July. August hiring in the service sector probably softened in part due to the timing of hiring for local school years and a fall off in seasonal workers during the summer vacation period.
The ESSAI has good correlations** with the major national indexes for activity in the service sector.
The S&P services purchasing managers index had a flash reading of 56.8 for August, up from the final 54.6 in July. The index generally sees only minor revisions from the flash to the final report. The S&P index is taken later than the regional surveys and is likely the more accurate perception of current conditions for the service sector. The final S&P services purchasing managers index for August is set for release at 9:45 ET on Thursday, September 3.
The ISM services index was little changed at 54.1 in July from 54.0 in June. Conditions in the service sector have been steady since 54.0 in March but activity remains more restrained since the start of the war on Iran on February 28. the conflict remains unresolved and economic uncertainty will remain a major factor for business activity, along with concerns about inflation and higher interest rates. The ISM services index for August is set for release at 10:00 ET on Thursday, September 3
*The ESSAI is an average of seasonally adjusted indexes from the Federal Reserve district bank surveys of the non-manufacturing sector. The districts correspond with about 48 percent of the US labor force. An index above 0 indicates expanding activity and below 0 indicates contracting activity.
**S&P PMI for services index correlation 0.755, ISM services index 0.747.
#The ESSPI is an average of unadjusted indexes from the Federal Reserve district bank surveys of the non-manufacturing sector. The ESSPI has a correlation of 0.841 with the ISM services prices paid index.
##The ESSEI is an average of seasonally adjusted employment indexes from the Federal Reserve district bank surveys of the non-manufacturing sector. The index has a correlation of 0.757 with the ISM services index.
