Labor Market
Service businesses in the Kansas City Fed’s seven-state region reported stronger sales in October, but more of them had cut staff over the past year than had added workers, and their hiring plans for the next six months turned negative, according to the bank’s monthly services survey released Friday, Oct. 23.
The Federal Reserve Bank of Kansas City’s month-over-month services composite index rose to 10 in October from 0 in September and -3 in August. The year-over-year employment index fell to -16 from -8, its lowest reading in the 13 months of history printed in the release. Those numbers are diffusion indexes: the share of firms reporting increases minus the share reporting decreases.
“A majority of firms reported increased sales from last year, but headcounts have decreased on net and are not expected to recover in the next six months,” said Cortney Cowley, assistant vice president and Oklahoma City Branch executive.
Jobs: a small monthly gain, a weaker year
Compared with September, the seasonally adjusted employment index edged up to 2 from -10. On a year-over-year basis, 25% of firms said they had more employees than a year earlier and 41% said fewer, producing the -16 reading.
The outlook also softened. The seasonally adjusted index for expected employment six months from now fell to -7 from 4 in September, and the bank said lower employment expectations were the main reason its expected-activity composite eased to 4 from 12. Employee hours worked stayed negative at -3 month over month, while the part-time and temporary employment index rose to 6 from -13.
Sales were the bright spot. The monthly general revenue and sales index climbed to 16 from 6, and on a year-over-year basis 53% of firms reported higher sales against 29% reporting lower sales. The bank said consumer services ticked up on health services and non-discretionary retail, while business services cooled slightly on moderate declines in transportation.
Pay and prices
Wage pressure continued but did not accelerate. The seasonally adjusted wages and benefits index held at 14 for a second month, and the year-over-year index was 65. The expected six-month index for wages and benefits eased to 40 from 47.
Costs remain the larger strain. The input price index was 48 month over month and 83 year over year. In special questions, 22% of firms said they could not pass any higher costs through to customers, and 25% said customers had become much more price sensitive than six months earlier, with another 38% saying somewhat more sensitive. One respondent quoted in the release said, “This is the toughest environment we have faced in at least 10 years.”
Manufacturing employment held up better
The bank’s manufacturing survey, released a day earlier on Thursday, Oct. 22, showed factory activity growing steadily, with a month-over-month composite of 11 after 14 in September. The bank said the factory employment index increased from September and expectations for employment ticked up, although year-over-year employment remained among the few negative indexes.
Caveats
The services survey was open Oct. 14 to 19 and drew 94 responses (61 consumer and 33 business firms) from Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri. It is a small, regional sentiment survey, not a payroll count, and it measures the breadth of change rather than its size. The October release also introduced new seasonal adjustment factors, so earlier index values differ slightly from previously published numbers. Still, a services sector reporting higher sales alongside shrinking and still-cautious staffing is a signal worth watching ahead of official state payroll data.
Sources
- Federal Reserve Bank of Kansas City, “Growth in Tenth District Services Activity Rose Moderately in October,” October 23, 2026. https://www.kansascityfed.org/surveys/services-survey/growth-in-tenth-district-services-activity-rose-moderately-in-october-2026/
- Federal Reserve Bank of Kansas City, “Growth in Tenth District Services Activity Rose Moderately in October” (release PDF with Tables 1–2), October 23, 2026. https://www.kansascityfed.org/documents/20216/2026October23_csqdNiQ.pdf
- Federal Reserve Bank of Kansas City, “Tenth District Manufacturing Activity Increased Steadily in October,” October 22, 2026. https://www.kansascityfed.org/surveys/manufacturing-survey/tenth-district-manufacturing-activity-increased-steadily-in-october-2026/
Featured photo: The Federal Reserve Bank of Kansas City building in Kansas City, Missouri, photographed May 21, 2025. Photo: Antony-22, via Wikimedia Commons (CC BY-SA 4.0). Cropped from the original.
