Service sector business leaders reported widespread pricing woes and a pessimistic outlook for activity in October, according to a report released Friday by the Federal Reserve Bank of New York. The survey highlighted significant service sector price pressures that are impacting the regional business climate.

What is driving the inflation?

The Federal Reserve Bank of New York noted that input price increases remained sharp during the current month. Furthermore, selling price increases reached their fastest pace since 2022.

Several factors are contributing to these economic tensions:

  • Worsening supply availability for firms.
  • Ongoing impacts from trade tariffs.
  • Surging energy costs linked to the US-Israeli war in the Middle East.

How is the business climate changing?

The report found that the current business climate is much worse than normal. Business activity has weakened significantly, with the headline index dropping 12 points to a reading of negative 20.7, which represents the weakest level since March.

While some data shows strong economic activity and low unemployment, this survey suggests a more difficult environment. Business leaders also indicated that capital spending plans remain weak and expressed growing pessimism regarding future activity.

What are central bankers saying?

High inflation led the Federal Reserve to increase interest rates last month. Chicago Fed leader Austan Goolsbee recently described a consumer inflation report as "discouraging," noting that services inflation shows little sign of improvement.

Fed Chairman Kevin Warsh declined to provide specific guidance on whether further rate hikes will occur by the end of the year. He stated, “I don’t prejudge meetings...I don’t believe in saying now what I might do at the meetings that we have in the balance of this year."

FAQ

Has business activity slowed?

Yes, the headline index dropped 12 points to negative 20.7, marking its lowest point since March.

When were selling prices highest?

According to the report, selling price increases have accelerated to the fastest pace seen since 2022.