New York Fed services survey flags broad price pressure and a weak outlook

Service-sector business leaders reported widespread pricing pressures and a downbeat outlook for activity in the New York Fed’s October survey, released October 16.^[1]

The survey captures regional service businesses’ conditions and expectations, rather than measuring nationwide inflation; a weak outlook does not itself establish that activity is already shrinking.^[1]

Price pressure alongside a weak outlook makes the choice between raising prices and retaining customers harder. If costs rise but demand cannot support higher selling prices, businesses may have to absorb more of the increase, squeezing profit margins—the share of revenue left as profit.^[1]

If service-price pressures persist and spread, inflation could ease more slowly, limiting the Federal Reserve’s room to cut rates and reduce businesses’ borrowing burden; this regional survey alone does not establish that policy outcome.^[1] On October 16, two-year Treasury yields stood at 4.74% and ten-year yields at 5.09%, down 0.03 and 0.01 percentage points from the previous session. Those financing benchmarks fell on the day, rather than demonstrating a survey-driven rise in rate expectations.

Impact

What to watch next

• The October 23 release of S&P Global’s October US Services PMI will test whether activity is also slowing nationally. The business-survey index is forecast at 58.0, versus 58.8 previously; readings above 50 indicate expansion, so the expected decline would not mean contraction.