By the time this article sees publication, the Federal Reserve will have made its latest intentions known. Nevertheless, the information contained here will serve investors well as a post-decision guidepost.

There are a few constants in the universe which throughout my adult life have been in place consistently. One of them is the insurmountable traffic on I-45 approaching the city of Houston. Another is the quest by all Fed chairs to engineer a soft landing in the economy after defeating the beast known as inflation.

In recent times, only Alan Greenspan has pulled it off, in 1994. Since then, it’s been a highly sought but elusive prize among central bankers.

As I recently made my annual trip to the South Texas beach town of Galveston, I couldn’t help but notice that contrary to what I’ve seen countless times, Houston almost resembled a sleepy sprawl. As a result, I was left with the notion that the Fed’s actions may have reached a point where even Houston’s usually frenetic economic pace might have hit the wall.

Aside from well needed rest and relaxation, the trip is a great opportunity to see how the Texas economy is faring. Of course, most of what I note is anecdotal, back-of-the-napkin stuff.

But even so, there is always good information to glean from the exercise. As Yogi Berra once said: “You can observe a lot just by watching.”

And what I witnessed made me wonder whether my observations indicate that a soft landing is developing, or perhaps we are in the prelude to something worse.

A Bit of History

My last working visit to Galveston was in late April 2022, when the Federal Reserve was still early in its rate hike cycle. During that trip I focused my observations on the housing sector in the Houston and surrounding areas, and compared the action there to what I was seeing at the time in my own haunts, the Dallas/Fort Worth Metroplex (DFW).

In my notes at the time, I jotted down the following:

• There is a deep contrast to the Dallas (DFW) area. In DFW, where housing developments are popping up everywhere, while along I-45 (Houston), many of the same developers are sporting empty fields with little more than model homes on them.
• North of Houston, in Conroe, there are two builders advertising starter homes for “zero down” payment. They seemed to have few takers.
• Traffic on I-45 was heavy on the weekend. Sunday was a madhouse, but the ride back on Thursday was sparse by I-45 standards.
• The drive from Galveston to Dallas only took four hours, including gas stops and road work delays.
• There was low traffic at the popular regional gas station super mart Bu-cee’s, which had smaller than usual crowds.
• Lots of RVs driving everywhere.

Here’s what I noticed this time:

• Very subdued traffic on I-45 in both directions.
• Houston is uncharacteristically quiet while Galveston is steady but not as crowded as during previous spring/summer visits.
• There is now very little new home construction evident along the highway other than apartments; even those are fewer than in Dallas.
• Northbound commercial truck traffic was moderate and yet dwarfs southbound flow.
• The most numerous commercial trucks were Amazon Prime trailers.
• The few FedEx (NYSE: FDX) and United Parcel Service (NYSE: UPS) trucks I saw had half size trailers.
• There were large numbers of U-Haul (NYSE: UHAL) trailers in northbound lanes; few if any heading south.
• There were fewer people at one Bu-cee’s than last year.
• There were almost no RVs on the road, while RV parks were very crowded.

The view from the ground confirms my expectations. Several shops in Galveston’s busy shopping district “The Strand” were closed during the week. We had no trouble finding parking. The one shop attendant I spoke to said this was a “normal” situation now but that business was “pretty good.” My wife and I were the only people in the shop at the time.

My chats with the parking attendants and waiters were more revelatory. One very sharp fellow looked at me and said: “We haven’t been the same since COVID.”

Clearly, the Texas economy has slowed, which is not surprising given that the Fed had only raised interest rates twice, by a cumulative 75 basis points in May 5, 2022. Since then, the central bank has raised rates another eight times, bringing the total to 10, with the fed funds rate rising essentially from zero to 5%, give or take a quarter percentage point as of June 12, 2023 when I’m penning this article.

Of course, by June 14, when this article is published, the Fed may raise rates again, although the betting on Wall Street is that the central bank will stand pat.

Why the Focus on Texas?

You may wonder why I’m focusing on the Texas economy. After all, it’s only one of 50 states in the union.

The short answer is that the Texas economy rebounded swiftly after the post-COVID shutdowns were lifted in the state. Moreover, the population rose dramatically. People from other states aggressively migrated to the Lone Star state, due to the more robust economic rebound and more affordable housing.

The upshot was a housing and commercial real estate building boom, which until recently had not shown much sign of slowing down.

All of which brings me to the points above which stand out the most: subdued traffic on I-45, smaller semi-trailers by big shippers, decreasing southbound traffic, and perhaps the most telling of all, the low traffic at Bu-cee’s. That’s because Bu-cee’s is akin to Walmart (NYSE: WMT) on the Texas highways. Just about everyone stops there to fill up, to use the clean bathrooms, and to buy food and souvenirs. The chain is a Texas traveling tradition.

In other words, what arguably can be considered the strongest economy in the nation is starting to show signs of slowing. And I’m not alone in noticing this. Here are three excerpts from comments made by respondents to the Dallas Fed’s most recent survey: “There is nothing encouraging on the horizon,” “orders canceled,” and “order volume has stalled recently.” This one seems to sum it all up: “seeing a massive slowdown.”

It’s All About the Transports

The ports of Houston and Galveston are increasingly important import/export hubs as the West Coast (Los Angeles and Long Beach) continue to struggle due to labor related issues. And as I noted above, the FedEx and UPS semitrailers which I saw on the road, heading north, were the half-size haulers.

Read This Story: A Stock That’s About to Put The Hammer Down

Certainly, there was decent, but clearly muted, truck traffic on the road beyond these two carriers. Among them were Amazon’s (NSDQ: AMZN) fleet. But to discount the stark reduction in haul size and presence by UPS and FDX, you’re likely missing a key point. This is especially true when you consider the recent warning by a key cog in supply chain management which I described in a recent article here.

As usual, price charts offer a viable link to reality, at least in their ability to reflect the market’s viewpoint. And what we see when we compare these two blue chip transportation sector bellwethers is stark.

FDX is currently consolidating after a nifty momentum run from the market bottom in 10/22, which has added about 60% to the shares. It is currently testing the support of the $220 price area. Much of its success has come as the market applauded its aggressive cost-cutting measures over the past two quarters.

UPS initially joined FDX in its rally mode but is now hovering near recent lows. UPS failed to regain traction, because of its battles against labor unions and struggles with falling freight volumes. UPS hasn’t been able to cut costs like its chief rival.

It’s Decision Time for Mr. Powell and the Fed

What we have is the following:

The Texas economy is showing signs of slowing. Certainly, anecdotal reports and concerns voiced in the most recent Fed surveys confirm the notion.

My recent in the field observations also suggest a slowing economy in Texas, especially the suddenly sleepy activity I saw in Houston and to a certain degree in Galveston.

Shares in FedEx are near their recent highs, as the market applauds the company’s cost-cutting and early response to a difficult environment. Meanwhile, UPS shares are getting punished as management struggles with labor disputes during what is clearly becoming a slower shipping market.

When the Fed makes its latest intentions known on 6/14/23, there will be repercussions. If the Fed leaves rates unchanged, it will increase the possibility of a soft landing. Think of FDX. If Powell and his cohorts raise rates again, macroeconomic conditions may come to mirror UPS.

Will we get a “soft landing” or…Houston, we have a problem?

Editor’s Note: Dr. Joe Duarte just provided you with invaluable investment advice. I also suggest you consider the advice of our colleague, Robert Rapier.

As chief investment strategist of Rapier’s Income Accelerator, Robert has developed strategies that make money in bull or bear markets.

Robert Rapier can show you how to squeeze up to 18 times more income out of dividend stocks, with just a few minutes of “work” each week. Click here for details.