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

• Prior was -7.7
• Revenue index +10.1 vs +8.7 prior (highest in 13 months)
• Employment +2.0 vs +0.6 prior
• Company outlook +1.2 vs -3.1 prior
• Six month index +17.4vs +12.4 prior

Comments in the report:

Utilities

• I feel the economy is getting better.

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

• Our business is weather dependent. Summer was milder, so revenue decreased.

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.

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