Flat Regional Services Activity: Factors, Trends & Future Outlook

Regional Services Activity in November: A Closer Look

The Federal Reserve Bank of Kansas City recently reported that services activity in the seven-state region, which includes Oklahoma, remained flat in November. However, expectations for the next six months have increased modestly. In this article, we’ll take a closer look at the factors influencing this trend and what it means for the regional economy.

Price Changes and Employment Index

According to the Federal Reserve Bank of Kansas City, prices for inputs and selling prices rose modestly in November and are expected to continue to increase going forward. The month-over-month services composite index, a weighted average of the revenue/sales, employment, and inventory indexes, was 1 in November, up slightly from -1 in October and essentially unchanged from September.

Revenues in real estate, professional services, and healthcare increased this month, while they declined in wholesale and retail trade, autos, and tourism. On the other hand, the employment index decreased from 5 to -2. This decrease in employment is expected to rebound in the coming months.

Expectations for Services Activity

The year-over-year composite index cooled from 9 to 2, and the employment index also edged slightly lower. Expectations for services activity rose from 7 to 13, indicating that firms are more optimistic about revenues for the next six months.

In November, contacts were asked special questions about employment plans and labor market conditions. The top three reasons affecting firms’ plans to increase employment remained unchanged from November 2022. About 71% of firms planned to increase employment because of high expected growth of sales, making it one of the top three factors driving an increase in employment plans.

Other firms noted that employment plans are driven by current staff being overworked or the firm needing skills not possessed by current staff. Over 56% of firms cannot find workers with required skills, which is the number one reason for restrained hiring plans, followed by high labor costs at 41%.

Selected Comments from Business Contacts

The Federal Reserve Bank regularly asks unnamed business contacts for comment about current conditions. Here are a few selected comments from the recent report:

• “We are experiencing lower than expected revenue growth due to a software vendor policy change which affects new customers. Our existing customers’ demand remains strong.”
• “Besides being in the typical 4th quarter slowdown, the market is also nervous about the government shutting down, and this creates a crisis of confidence in making large purchases.”
• “People are not buying because they do not want to pay the higher interest rate and higher cost of vehicles.”
• “It appears that many of our clients are hiring less or not outsourcing their staffing needs.”
• “Single-family house permits include many more rental single-family homes than in the past.”

Conclusion

Overall, regional services activity remained flat in November, with modest increases in input and selling prices. The employment index decreased, but it is expected to rebound in the coming months. Firms are more optimistic about revenues for the next six months, which may lead to an increase in employment plans and overall growth in the regional economy. However, finding workers with the required skills and managing labor costs remain challenges for businesses in the area.

Stay up to date with the latest regional services activity by following the Federal Reserve Bank of Kansas City and our own Jessica Fulk Real Estate for more information on the real estate market in the region.

Orginal article: Link To Article – provided by Kansas City Realtors