US DATA: KC Fed Services Activity Declines Only Slightly, Defying Broader Trend

The Kansas City Fed's services sector survey showed a small pullback in the composite index to 0 in March from 2 prior, suggesting flat activity on the month - though this was still better than the 13-month low -4 in January. 

• The moderate decline contrasts with other regional Fed services surveys (NY, Philly) that saw much sharper drops in March amid tariff-related uncertainty.
• The internals of the KC report were mixed: "Activity in tourism & hotels grew and declines eased in the wholesale, real estate, and professional services, and education sectors. Healthcare and retail activity fell further. The month-over-month indexes were mixed. General revenue/sales picked up from -1 to 4, while employment decreased from 3 to -5. Employee hours worked decreased to its lowest reading since May 2020 at -10. The year-over-year composite index cooled further from 6 to 2, as growth in the business sector eased and consumer activity remained flat. Revenues were steady, but employment fell from the previous year’s levels for the first time since April 2024. Capital expenditures and access to credit fell only slightly."
• Expectations pulled back to 12.0 from 17.0 prior, still positive but "with firms expecting lower sales and employment growth in the coming six months."
• And the anecdotes in the report were much more negative on balance: “Customers are feeling pinched while tariffs have elevated our input costs. The short-term economics for us look dreadful and that will have an effect on our employment and investment in the business...Many economic headwinds making growth very difficult....Our sales increased this month. The adjusted interest rates and a reduction in our input costs is having a positive effect on consumers’ confidence...Customers are cutting back....Tariffs are killing us, just the thought of tariffs and the uncertainty they cause. Our stores are in high traffic shopping areas and all are quiet...As a small business, we are finding it difficult to gain new business because we don't have the resources to compete with the bigger companies...Some re-investment will be deferred until 2026 so we can recover from 4th quarter 2024...We are expanding and adding staff. Still tough finding quality blue collar workers."