US May Dallas Fed services sector outlook -12.1 vs -10.6 prior

• Prior was -10.6
• Services sector revenue outlook +6.7 vs +0.3 prior
• Wages +16.1 vs +14.2 prior

This indicator doesn’t move markets but the comments have something for everyone.

Truck transportation

• Trucking is definitely in recession. Truck freight in both
  volume and price per mile is way down. Our business won’t recover until
  the industry recovers.

Warehousing and storage

• We are seeing a little slowdown, and inflation doesn’t seem to
  moderate as much as we expected, so we are still seeing increases in
  input costs and services.

Publishing industries (except internet)

• We see the impact of the high-interest-rate environment starting
  to impact our customers and customer prospects. Growth is declining,
  and new business inquiries have waned for key products and services.

Data processing, hosting and related services

• Interest rates and inflation continue to dominate company
  decisions—our company and our clients and prospects. Costs are high, and
  budgets are super tight. Therefore, confident decision-making is more
  challenging for all. Our hiring is on hold while most of our clients
  continue with layoffs. We believe purchasing decisions will resume after
  the elections, but a lot depends on the geopolitical climate and
  unexpected events.

Credit intermediation and related activities

• The rural economy and the regional economies are maintaining a
  steady pace. Sales tax rebates are down slightly for the month but up
  year to date. Prices for goods, supplies and services remain elevated,
  restraining consumer purchases and construction projects.
• There’s continued uncertainty in general economic conditions and
  with the Federal Reserve’s position on interest rates in light of
  inflation and labor data.
• Investment sales are remaining sticky, with a gap between seller
  expectations—the combination of buyer requirements and lender
  underwriting for new loans. On the refinancing side, loans that were 10
  years in term can be refinanced if there was appreciable amortization.
  There are no delinquencies in our servicing portfolio of life insurance
  company loans.

Securities, commodity contracts, and other financial investments and related activities

• Rain has helped, but job growth has slowed.
• As a commercial real estate development company, our ability to
  raise capital for new projects has been greatly impacted by the current
  interest rate environment, and the value of existing assets has been
  significantly impaired. Currently, all levers are in the wrong direction
  for our underwriting of existing and operating assets and future
  developments. Rents are softening. Overall capital and financing costs
  have substantially increased. Materials and labor costs have stabilized
  but remained high. Operating expenses are up (including insurance,
  property taxes, property management, etc.), and cap rates have increased
  (due to interest rate increases). Equity returns have not decreased,
  unfortunately. Therefore, we are currently very far off from
  economically being able to make developments work. We have tried very
  hard to hold on to employees throughout the last two years of
  challenging times, but we are on the brink of having to make major
  staffing cuts if we are unable to find some relief from some or all of
  the above metrics. We have several (eight in total) development pipeline
  assets, which include fully entitled, fully designed (shovel-ready)
  multifamily and mixed-use projects that are permitted and ready to go.
  However, the carry cost is substantial, and the reality is that we will
  likely have to sell some to all of our pipeline assets at a discount,
  reduce staff and wait to start over once the economic environment
  improves and can support new development. Our outlook is that the
  current economic environment will cause many developers to shut down,
  and only those who can manage to scale back their businesses will
  survive to this point. Even though (in Texas) there is a still a large
  supply-demand deficit for housing, there were many new starts in 2021–22
  that are now completing and beginning to lease. Due to the unusual
  amount of supply coming online all at the same time, lease-up is slower
  than normal, and even though all the units will get absorbed (i.e.,
  because the demand is still strong), it will be at a slower rate until
  all of the competing units are leased up. Once that happens, we believe
  there will be a two-to-three-year period of little to no new project
  starts, followed by a lack of supply in 2026–28 that will cause rents to
  spike and likely support the economics of new developments to resume.
  We hope that during the next two-to-three-year period, when the
  economics do not work for development, that materials and labor pricing
  will also fall, further helping the economics for development.

Real estate

• Interest rates remain a concern for my clients.

Rental and leasing services

• A sharp decrease in labor supply from immigrants would be a disaster for Texas businesses.
• It’s an election year, so we would assume no one is going to
  allow the economy to go down. However, signs are mounting. After four
  months, we are flat compared to last year.

Professional, scientific and technical services

• We have seen an increase in sales prospects, primarily through increased investment in marketing.
• It seems the job market is under less pressure. We’re seeing a
  slight increase in the quantity and quality of candidates applying for
  jobs. We’re expecting a short downturn in business as we get close to
  the election. But hopefully that won’t last long. We’re excited about
  having some new people. They are much needed and will take some stress
  off the system.
• This is the worst we’ve seen in the real estate market since the Great Recession.
• Most investors are sitting on the sidelines until after the election or interest rates decrease.
• Availability of financing for growth remains a concern. We
  expect there will be no change in rates until the fall. We are reworking
  several loans as well to help free up cash for the upcoming end of the
  federal contract award season.
• We are getting the business, actually more of it than we can
  handle, but finding the right consultant with the appropriate experience
  and expertise has been the issue.
• Our sales have been on the rise, and we’re thrilled that more
  organizations, both nonprofit and for-profit, are turning to us for
  their hiring needs. We recently introduced a new offering to work as an
  outsourced recruiting partner for teams needing extra support. This
  model has been popular because it saves companies money compared to the
  traditional per-position payment method. As long as unemployment remains
  fairly low and companies have a hard time finding really good talent,
  we will do well.
• We have been in a rolling 15-month recession that is starting to
  brighten up slightly. Our real estate orders have continued to decrease
  this year, and that is an indicator that the market is pulling back due
  to the unknown of where interest rates are headed. There is still a lot
  of money on the sidelines waiting to be deployed, but until the market
  can determine where the economy is headed, it will stay there.

Management of companies and enterprises

• The pipeline for sales and upcoming transactions is low.

Administrative and support services

• We are fairly certain that we will be closing our doors and releasing as many as 60 employees in the next few months.
• Election-year unknowns are creating instability and disruption in our primary markets.
• Interest rates and higher input costs seem to be the key drivers currently.
• We shifted our real estate appraisal and consulting business
  strategy from lender-based clients due to a 50 percent decline in
  revenue in 2023 due to the adverse impact of higher interest rates on
  lending. Now we are focused on public sector valuation projects such as
  airport lands, roadway extensions, etc. Also, we shifted our marketing
  focus to private sector expert witness consulting. Both strategies are
  increasing revenue and the bottom line.

Ambulatory health care services

• The business environment feels quite unstable currently. Service
  prices for support vendors and supplies continue to increase, while our
  ability to negotiate higher reimbursement rates from insurance companies
  continues to stall. Our urgent-care volume also continues to be softer
  than expected going back to March, which includes an earlier departure
  of seasonal flu and a reduction of overall COVID-19 testing.

Texas Retail Outlook Survey

Accommodation

• It is difficult to determine where our business is headed. The
  month of May is softer, but it may be an isolated issue to us. We have
  significant construction in our area, which may be impacting our
  business levels. However, our information indicates that downtown in
  general is performing below last year.
• We are steadily getting busier as business travel is increasing,
  though not as fast as we would like. The cost of doing business is
  still on the rise, and we have increased our pricing to match the cost,
  and we see that this will happen again within the next six months as
  well. We have had to increase wages moving forward to keep good
  personnel on staff.

Food services and drinking places

• Our cost of goods is stable; however, wages continue to have
  upward pressures because employees are struggling to keep up with rising
  rents, rising groceries and rising interest rates.
• Higher prices are frustrating our guests. Customer counts are
  down for that reason and because of the shift of office workers to their
  home offices. This has caused our lunches to soften and our happy hours
  to almost disappear. The discussion of eliminating tipping is worrying
  us. With prices already impacting guests’ wallets and psyche, it will
  really hurt if we eliminate tipping and raise prices even more.
• Our struggle with back-to-office and business travel continues.
  The cost of goods sold continues to increase, albeit at a slightly
  slower pace. Labor cost might be improving, but it’s too soon to know.

Merchant wholesalers, durable goods

• The availability of long-term contracts and projects seems to be
  reducing as we move through 2024. Six months ago, we had many requests
  for quotes for large projects, which offered security for our growth.
  Currently, we are only seeing bids for small projects or single-service
  events.

Merchant wholesalers, nondurable goods

• We have added some new business, so our company outlook has
  improved. However, the food-service market continues to be ambiguous.
  Industry discussions center on consumer spending. People like to eat
  out, and they are willing to eat out, but at a lower pace (fewer visits
  per month). Our customer sales volumes are unchanged, but I believe it’s
  because of higher sales prices (adjusted for inflated protein costs),
  not more meals served. That said, the industry believes frequency will
  increase as people make budget decisions to sacrifice in other areas.

Motor vehicle and parts dealers

• Business just continues to remain very volatile, and it’s not
  just related to issues with the weather. We’ll have one day when it’s
  dead, and then the next day we can barely keep up. There are storms on
  the horizon. Margins are under attack. Used-vehicle departments are
  experiencing major challenges and significant declines in selling gross.
  New-vehicle inventories are too high, and the cost to carry is
  excessive, resulting in a negative impact to overall profitability.
• We continue to be concerned about interest rates.
• The major concern is the low margin on sales of new vehicles. We
  are becoming concerned about the ability to arrange financing for our
  customers on purchases of both new and used vehicles.
• Vehicle demand continues to be strong at retail.

Nonstore retailers

• Inflation is getting pretty scary. We can’t make enough interest
  on our deposits to cover inflation. We are worried about how to keep
  increasing pay to our employees to offset inflation.

This article was written by Adam Button at www.forexlive.com.