US DATA: KC Fed Services Sees Surprising Strength In May

The Kansas City Fed's services sector survey showed a strong rebound in the composite index to 11 in May from 3 prior, marking a 23-month high. The 6-month outlook however ticked 1 point lower to 13.

• The KC Fed survey has been a bit of an outlier versus other regional Fed reports, generally seeing less volatility in either direction throughout the last few months of tariff policy uncertainty.
• Each of the regional surveys for May so far (as well as flash PMI) have shown an improvement in services activity, though the rise in KC is especially impressive, with the current index catching up to prior relative optimism (6-month outlook) rather than the other way around.
• Additionally, input inflationary pressures softened (to 43 from 49) though selling prices rose (to 18 from 16).
• Note that the survey period was May 14-19 so this will have been conducted after the May 12 US-China trade truce, potentially boosting firms' optimism.
• From the report: "Activity in tourism, wholesale trade, and professional services increased, while retail trade and autos saw declines. All month-over-month indexes were positive except access to credit. General revenue/sales accelerated from 4 to 14, and employment and employee hours also increased to 10 and 9, respectively. Access to credit continued to decline modestly at -4. Year-over-year growth ticked down but remained positive, as growth in business services softened while staying mostly steady in the consumer sector (Chart 2). Revenues and employment growth cooled from last month’s readings, but capital expenditures accelerated from 9 to 19. Expectations for future services activity remained expansionary, with expectations for revenue easing while employment increased."