The Econoday service sector activity index (ESSAI)* for March rises to 13.0 from 6.1 in February and 5.2 in January. The new index of current service business activity derives from Federal Reserve district surveys.
On the surface, the reading points to upward momentum in the non-manufacturing sector across the Fed districts. However, half the surveys show a decline in activity and the other half sees activity firming. The bottom line is that the service sector is performing unevenly across regions in March. The surveys that declined probably caught the leading edge of the economic impacts from the war on Iran begun February 28.
A common theme in survey respondents is heightened uncertainty. Even where activity is seen as firming in March, the outlook for about six months from now is less robust. Implications of the lengthening war are not captured in the March numbers. Worries about higher input costs from energy prices for operations and pass-through from the factory sector are not broadly visible in the March report, but April is likely to change that.
The EFSAI has strong correlations** with the major national indexes for activity in the service sector.
The S&P services purchasing managers index had a flash reading of 51.1 for March, down slightly from the final 51.7 in February and the same as 52.7 in January. 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 S&P final services index for March is set for release at 9:45 ET on Friday, April 3.
The ISM services index was higher at 56.1 in February from 53.8 in January, a rebound that probably owed something to a rebound from winter storms. Despite the increase in the ESSAI, the ISM index for March will also probably slip from the February reading.
The ISM services index for March is set for release at 10:00 ET on Monday, April 6. The ISM index is normally the third business day of the month. Friday, April 3 is Good Friday. Although this is not a federal holiday in the US, ISM is treating it as one.
*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 0.808, ISM services index 0.893.
