Tenth District Services Activity Expanded Again
Business Activity Expanded Again in August
Tenth District services activity expanded again in August, but was still much lower than a year ago, while expectations for future activity rebounded (Chart 1 & Table 1). The indexes for input and selling prices increased at a faster pace in August. Firms expected input and selling prices to rise further over the next six months.
The month-over-month services composite index was 20 in August, unchanged from 20 in July, and up significantly from 3 in June (Tables 1 & 2). The composite index is a weighted average of the revenue/sales, employment, and inventory indexes. Month-over-month indexes were similar in August to the postings from July. The general revenue and sales index was still high, driven by increased activity for wholesale, transportation, real estate, restaurants, tourism and hotels, while retail activity declined slightly. The indexes for employee hours, part-time employment, wages and benefits, and capital expenditures expanded at a faster pace in August, and the employment index remained positive. On the other hand, the month-over-month indexes for inventories and credit conditions decreased again in August. In addition, most year-over-year indexes declined further in August, and the year-over-year composite index dipped from -20 to -24. However, the year-over-year index for capital expenditures rose into positive territory for the first time since February. Expectations for future services activity rebounded in August, and the composite index grew from -2 to 11.
This month contacts were asked special questions about the impact of government stimulus and unemployment benefits. Nearly 75% of contacts reported that government stimulus programs positively contributed to their business’s performance in the past three months (Chart 2). A number of firms noted the Paycheck Protection Program (PPP) loans helped cover cash flow and retain staff, and 44% of firms indicated their business outlook was dependent on additional government support. Around 60% of contacts indicated the CARES Act extra $600/week or recent $400/week boost in unemployment benefits created some or significant difficulties in bringing furloughed or laid-off employees back to work (Chart 3). 40% of businesses reported difficulty sourcing inputs, such as materials or employees.
Selected Services comments
“Need more PPP help.”
“The PPP loans with forgiveness of wages was a brilliant idea. I kept the employment relationship intact and instigated a quick recovery when business returned.”
“Sales have slowed and we were considering layoffs until after the pandemic was over, however we secured a PPP loan and were able to operate and keep all of our employees.”
“Our sales were down 20% in March then about 15% in April. But we have pivoted and are sales are flat at the moment. The PPP gave us time to pivot and helped us work to boost sales in new areas. It was a HUGE help for us.”
“Lumber market has never seen the meteoric rise in the cost of dimension that we have seen in the past 4 to 6 weeks. Past rallies have developed over a much longer time frame, then peaked out. It will hurt profits for both material suppliers and builder customers that have sold houses to be built at a fixed price.”
“When business volumes returned to normal (plus) we were suspicious that the extra $600 from the Cares Act impeded our ability to hire new employees - our suspicions were confirmed when we were able to increase our [labor force] by 10% within the first two weeks of August.”
“Some of our more entry level or front line folks in our production/essential roles have chosen to simply stay home and take the stimulus money versus come to work.”
“We have not made any employment changes due to pandemic.”
“Could use some employees but unemployment payments are too good.”
“Hourly store members were distracted by higher unemployment benefits. This is getting better now. We continue to pay $200 per month COVID-19 stay bonus to hourly team members.”
“Customers are very sheepish due to all of the volatility and unrest, combined with the healthcare crisis (COVID-19) - leading them to not have confidence to make major or long term decisions.”