Dallas Fed September service sector outlook index -2.6 vs -7.7 prior

Comments in the report:

Utilities

Professional, scientific and technical services

Our employees are very overworked. We have had a very difficult time finding qualified engineers. Our main emphasis for the next six months will be to fill some key positions.
The shortage in the experienced professional workforce continues. We’re in a medium market, and there is staff poaching going on. Competitors are throwing money and flex-hour options to entice employees to change jobs.
The anticipated rate decrease may improve business activity in the fourth quarter.
The recent rate decrease will ease some of the trepidation of the upcoming fiscal year. Hopefully, in the coming months, this will translate into available funding for business expansion.
The November election is the determiner of how things will improve or not.
The overall business activity has increased slightly in the commercial real estate market but has slowed in the residential real estate. We are encouraged by the increase in the commercial sector and feel the residential sector will see some improvement in the months to come. A decrease in the interest rate is much needed.
The rate cut will help our clients’ cash flow and thus create more spending/revenue.

Management of companies and enterprises

Uncertainty is high. We are putting capital into our company for the first time since its inception to keep the operations afloat. A lot of our workers are contractors, and they’re really suffering.

Administrative and support services

The rising cost of living in Dallas has impacted both our employees’ financial situations and the labor costs required to retain them in an increasingly competitive market. High housing prices in particular have hindered our ability to attract and retain skilled technicians from across the U.S.
Expectation of lower interest rates is driving most of the behavior currently.
Our issues include new employees passing drug tests. Hiring quality employees is becoming more and more difficult.
For more than 20 years we have seen the market soften in October of a federal election year. It has not proven to be outcome-dependent, but it forces an earlier slowdown than is typical in the fourth quarter, which is already soft due to the impacts of the holidays.
Interest rates going down could spark a lot of home purchases. In general, that would help us, as more of our clients want to sell property than buy. The uncertainty is up because we do not know if that will happen.

Educational services

Demographic shifts and international issues are starting to impact college enrollment in Texas. We had been immune to these in the last few years, but we’re now feeling the effects.
We feel strongly that inflationary pressures are moving in the right direction, and the employment picture seems to be more favorable to a full-employment scenario.

Nursing and residential care facilities

The cost of services has increased specifically in the area of electric utility charges, which have increased 100 percent over the past contract period. The company outlook has worsened based on the challenge to our nonprofit status by the county.

Accommodation

The number of employees going back to school/college lessened our hours for those employees, and part-time employee hours increased as a result.
We are in a very unclear moment in terms of the economy and where consumers’ minds are. There is still a perception of high prices, but it looks like inflation may be easing. It may level out if the Fed reduces interest rates and more economic data show we are back in the 2-3 percent range for inflation.

Rental and leasing services

The two biggest policy factors that worry us are immigration demagoguery choking off the much-needed labor supply and tariffs fouling up our smooth and cost-efficient supply chain from Korea.

Real estate

In our multifamily property management business, we are finding greater success working with lenders. As high interest rates continue to catch up to borrowers with floating-rate debt, lenders are being forced to step in and take control, either through foreclosure or accepting deeds in lieu of. They seem to be increasingly accepting the fact that they will have to support assets financially for the next year or so until the market catches up enough for them to unload the collateral at a price that keeps them mostly whole. Rate cuts aren’t going to save them at this point (unless the cuts are huge), but rate cuts will help the cycle begin anew.
Lower permanent mortgage rates are one precursor to improved commercial real estate activity.

Specialty trade contractors

Support activities for transportation

The new judicial reform in Mexico has increased the level of uncertainty for all companies doing business on both sides of the border. Our legal team in Mexico City suggested caution in relation to future investment.
Houston port strikes are a week away, adding to the uncertainty. The trucking industry is still in the throes of a recession due to excess trucking capacity in the market. Many, if not most, carriers are running at cost.

Warehousing and storage

The rate cut had a calming impact in the medium term.
That’s balanced by the impending strike at container ports, which we believe will have an outsized impact on economic conditions over the next several months.

Credit intermediation and related activities

The interest rate environment may change and would benefit financial institutions, but regulation continues to increase substantially. The election could change the current administration’s approach to regulation depending on which party wins it. Excessive regulations have been an extreme burden for the banking industry with the greatest impact to community banks.
Commercial real estate financing related to investment sales remains very low. However, there are expectations the cost of debt capital will go down following an anticipated reduction in short-term interest rates.

Securities, commodity contracts and other financial investments and related activities

The recent Fed reduction in interest rates has improved business confidence and outlook.
Capital cost is prohibitive for business growth.

Insurance carriers and related activities

We think once the presidential election is behind us and current insured property losses are lower than last year, the economy should improve. We are having more qualified candidates for hire coming into focus for us lately.

Texas Retail Outlook Survey

Nonstore retailers

We are very worried about our labor situation and business environment in the long term.

Electronics and appliance stores

We are only selling single-piece, unplanned purchases with extreme price pressure. Positive cash flow is not sustainable at this time.

Motor vehicle and parts dealers

Affordability remains low. The interest rate drop will make little difference in the near term. The cost of doing business is increasing as margins decline. Year-over-year profit is down 20 percent.
Retail traffic has slowed down noticeably in the last couple of months.

Merchant wholesalers, nondurable goods

The Fed decreasing rates will be well received. That said, we have been a big fan of raising rates. Money has been too cheap, and it finally caught up in the form of inflation.

Food services and drinking places

The energy industry continues to see more and more mergers and acquisitions, which will impact our community. With all that said, we believe as rates drop, energy activity and home sales will increase.

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