“Tremendous Economic Slowdown…High Rates Are Killing Us” – Dallas Fed Services Survey Tumbles Back Into Contraction

A day after The Dallas Fed reported the 19th straight month of contraction in its Manufacturing Outlook survey, its Service Sector Outlook survey contracted for the first time since Dec 2022.

The revenue index, a key measure of state service sector conditions, fell three points to -2.4.

Source: Bloomberg

Respondents in November continued to perceive worsening broader business conditions, though pessimism waned slightly, with future general business activity index remaining in negative territory but improved to -7.8.

Additionally, Retail sales declined in November, according to business executives responding to the Texas Retail Outlook Survey, with General Retail Business Activity dumping back into contraction...

Source: Bloomberg

Some potentially good news is that Input Prices continue to fall (but Selling Prices ticked back up)...

Source: Bloomberg

Respondents were almost uniformly downbeat... and getting downbeat-erer...

• We feel that we are headed for a recession. (Utilities)

• There is still no sign of when this slowdown in the tech sector will turn and begin to improve. (Professional, scientific and technical services)

• We see mixed signals everywhere. Inverted yield curves imply a recession. Probably we're already in a rolling recession. (Professional, scientific and technical services)

• The general level of business activity has continued to slow month over month, and we do not see this improving due to the uncertainty of interest rates and the banking industry. We hope to have some clarity the first half of the next year. (Professional, scientific and technical services)

• Interest rates are severely impacting our clients’ cash flow and solvency. We are seeing defaults increasing. (Professional, scientific and technical services)

• Congressional dysfunction and Israel and Ukraine disagreements add to anxiety over inflation and financial wellbeing. (Professional, scientific and technical services)

• Monetary policy alone is not the ticket; we need to jawbone fiscal policymakers in the medium and long term. (Educational services)

• Washington dysfunction, inflationary fiscal policy and geopolitical uncertainty are causing forecasting and business environment uncertainty. (Administrative and support services)

• Business has unexpectedly slowed over the last several months. We think the average consumer is overextended and is cutting back on spending. (Personal and laundry services)

• It looks like we are poised to enter recession, based on our assessment of the broader economy and specific sectors such as commercial real estate. This may be good for future business activity if interest rates drop by mid-year 2024 in response to the slowing economy. (Real estate)

• As year end approaches, our clients are indicating that budgets for 2024 are lower and tighter than they've seen in years. (Data processing, hosting and related services)

• We have been in the residential mortgage industry for more than 30 years. We think by this time next year, 85 percent of existing lenders and 50 percent of real estate agents will be gone. Many middle-class jobs will be gone. (Credit intermediation and related activities)

• We're seeing a significant month-over-month drop in orders and sales. The downward trend started in August. Typically, the fourth quarter is our strongest quarter, and it will be very soft this year.  The restaurants we serve in Hawaii and Puerto Rico are slow by historical standards, but volume is up slightly over last year. Our export business to restaurants in Latin America has not seen the drop in volume compared with domestic business. (Merchant wholesalers, nondurable goods)

• Tremendous economic slowdown. It seems customer sentiment is extreme worry. (Motor vehicle and parts dealers)

• These high interest rates are killing us. Not a fun time in the small business world. (Building material and garden equipment and supplies dealers)

And finally, this seemed to sum the situation up perfectly for many businesses nationwide:

Global unrest and challenges in our nation’s capital are creating troublesome times. Add workforce shortages, high interest rates and inflation, and it appears a perfect storm.

Bidenomics will fix that, don't you worry!