“On The Verge Of Panic” – Dallas Fed Services Survey Suffers Longest Slump Since ‘Lehman’

It has been a terrible day for ‘soft’ survey data…

Source: Bloomberg

And it was just capped off by a big drop in Dallas Fed’s Services survey (which compliments yesterday’s Dallas Fed Manufacturing meltdown). The headline print dropped from -5.5 to -10.6. That is the 23rd straight month of contraction in the survey (one more month equals the span of contraction around Lehman’s collapse)…

Looking ahead, the picture was an ugly stagflationary one with revenue expected to grow slower and prices expected to rise faster…

With General Business Activity expected to decline (the first time since Nov 2023)…

But, just like the Manufacturing survey, it is the respondents answers that tell us the most about what is really occurring in America…

Inflationary pain…

• We repair long-haul trucks. The volume just keeps going down, which means everyone is holding back on repairs, so we have no work. Inflation keeps driving our costs up. It’s not looking pretty for trucking.

• Persistent inflation and the Fed potentially delaying rate cuts are causing uncertainty for the second half of 2024.

• Continued high interest rates, inflation and general economic malaise has caused employers to be very reluctant to hire professional level talent. They may replace talent if they have attrition, but in general, they are very slow to make any new hire decisions.

Political and geopolitical Uncertainty is weighing on many firms:

• The impact of the higher rate environment seems to be catching up, with general purchase intent among customers flattening out. At the same time, budget cuts and political uncertainty have impacted our public sector business as well, creating additional uncertainty across our business.

• The stress of an election year adds to the concern citizens have about the direction of our economy.

• We are still worried about the election causing uncertainty in our clients and prompting a slowdown later this year. Some clients are still worried about inflation and are stalling projects because of the volatility in the supply market. Overall, it is tough to make any forecast right now. Our backlog is strong for the next couple of months, but not as far in the future as we would like.

• The intensity of international conflict and increasing long-term rates certainly raise concerns.

• Geopolitical tensions are creating an uncertain environment. Also, upcoming elections and how this may affect the Fed’s monetary policy is a concern.

Too much regulation…

• Burdensome federal regulations are increasing the cost to do business, such as the so-called “Corporate Transparency Act” and minimum wage increases that just continue to drive inflation.

• Overregulation takes away a lot of time and money.

Rates are too damn high…

• We recently renegotiated our $600 million debt facility. Our cost of funds went from 9 percent to 14 percent—that’s a pretty big hit to our bottom line and resulted in us increasing prices to our customers.  Our business focus has been on forecasted easing; however, the reality of rates staying higher longer is creating uncertainty.

• The Federal Reserve signaling it will hold the rate at the current level for longer has affected our outlook negatively.

• Recent movement in long-term rates, combined with the Fed holding rates longer, have delayed the expected value of investment recovery until 2025 or later.

• The increase in treasury yields since last fall has negatively impacted deal-making activity in the income property industry

• Cost of capital is weighing on our customers and decreasing volume.

• High interest rates have drastically hindered our ability to grow our business, and it looks like a rate cut is not likely happening in 2024.

And finally, there’s panic in the air…

• We are a construction machinery and material handling dealership. Our business in the first quarter of 2024 was down 2 percent, and the industry was down 12.3 percent. Our manufacturing clients seem almost on the verge of panic, and there is stuff in inventory. We need a guest-worker program to meet our skilled-labor needs long term.

• We have not been this slow since the Great Recession. This includes Covid. We cannot understate how terrible the prospective real estate market is. People are not filing zoning cases, meaning in two years there will not be construction. Volumes have gone down in the automotive industry. It seems they are beginning to turn around, so we’re hoping.

But, but, but… “Bidenomics!”