Dallas Beige Book
November 28, 2012 · Dallas Beige Book Reports
The Eleventh District economy expanded at a modest pace over the past six weeks. Reports on manufacturing and transportation services activity were mixed. Demand for staffing services declined, while that for other business services held steady or increased slightly. Retailers' reports on demand were mixed, while automobiles sales were flat. Residential sales and construction increased, and energy activity remained steady at high levels. Financial firms reported mixed demand. Agricultural conditions remained mostly dry. Most respondents said prices held steady, and employment levels were steady to up. Many firms' outlooks remain uncertain, given regulatory and fiscal concerns and short-term disruptions caused by Hurricane Sandy.
Most reporting firms said prices were steady, however there were a few scattered reports of higher prices. Retailers said prices had not changed much since the last report, but the drought is expected to increase food costs. Some transportation services firms noted that prices were up due to increased fuel and labor costs. Several manufacturers of construction products said that stronger demand was supporting higher prices. Some paper manufacturers noted an increase in selling prices. Grain prices declined over the reporting period and cotton prices remained weak.
The price of WTI was volatile during the reporting period but ended up in the mid-$80 per barrel range. Natural gas prices, while still depressed, rose to $3.40 per thousand cubic feet over the same period. On-highway diesel and gasoline prices trended down over the reporting period, and prices of petrochemical products were mostly flat.
Employment held steady or increased at most responding firms. Accounting and legal firms reported hiring, and one staffing firm was adding to its payrolls despite a recent slowdown in demand for temporary workers. Shortages of truck drivers continued to be noted by transportation service firms and there were scattered shortages of workers at energy-related firms. Wage pressures remained subdued.
Overall demand for construction-related products was mixed. Demand for stone, clay, cement, glass, and lumber held steady or improved, and outlooks were more optimistic compared with the previous report. Demand for fabricated metals products held steady over the past month, but contacts noted that overall demand has been steadily improving since the beginning of 2012. Primary metals manufacturers characterized demand as poor over the past six weeks and said that they expect continued weakness in sales through year-end.
High-tech manufacturers said that shipments and new orders declined since the last report. Demand for industrial and computing products was particularly weak, and contacts noted weakness in personal computer sales was negatively impacting sales of other related hardware such as printers. One respondent noted that while orders have declined recently, cancellations have not increased, suggesting that declines in orders may be due to thinning of inventories not due to slowing of final demand. Continued high uncertainty about economic prospects was restraining capital investment, and respondents expected sustained weakness over the next six months.
Demand for paper products was flat to up, and most contacts were slightly more optimistic in their outlook. Food producers reported stable demand over the past month, and noted that sales were higher than a year ago. Overall, transportation equipment manufacturers said demand was flat to down over the past six weeks. Demand for aviation equipment held steady. Outlooks were cautiously optimistic, and contacts expect demand to pick up in the second half of 2013. A producer of recreational vehicles noted a slight lull in sales, and an emergency vehicle manufacturer reported stable demand.
Petrochemicals producers noted Gulf Coast chemical production was up slightly, but uncertainty cautioned firms' outlooks. Gulf Coast refiners said they were operating at rates above 90 percent, and strong export demand was keeping inventories from building.
Retailers said demand was mixed over the past six weeks. Sales in the Eleventh District continued to outperform the nation, according to two national retailers. Contacts said the loss in sales resulting from Hurricane Sandy was temporary and would not impact holiday spending. Outlooks through year-end were mixed.
Overall automobile sales were flat, while new vehicle sales declined slightly since the last report. One contact noted that obtaining credit approval has not been an issue and customers wanting to buy cars can get financing. Prices are stable, but margins are thin. Outlooks remain positive for the fourth quarter, but contacts expect the cost of doing business to increase next year.
Staffing firms said demand "came to a sudden stop" over the past six weeks, as several clients delayed hiring until after the election. Declines were reported in orders from mid-sized manufacturing and construction firms. However, one contact noted steady demand for professional, technical, and information technology positions. Outlooks were mixed.
Overall, accounting firms noted steady demand for their services. Demand for insurance and audit services was robust, while that for tax services was flat to slightly down. Real estate related activity remained weak. Outlooks were more positive than earlier in the year, with contacts expecting an increase in tax and transactional related services in the near-term. Legal firms reported a modest pickup in activity, with continued strength in intellectual property litigation, energy and real estate-related services. Outlooks for next year were upbeat among legal industry contacts.
Reports from transportation service firms were mixed. Intermodal cargo volumes declined, while container volumes increased over the reporting period. Railroads said cargo volumes declined slightly over the past four weeks, with declines in shipments of coal, metals, primary forest materials, and metallic ores outpacing increases in shipments of grain, chemicals, lumber and wood, and motor vehicles. Airlines noted that demand was flat to down since the last report. Demand for domestic travel declined, while that for international travel was strong. Airline contacts were cautious and uncertain in their outlooks.
Construction and Real Estate
Single-family housing activity remained strong. Both new and existing home sales activity increased over the past six weeks. Contacts noted that despite a pickup in new construction, low inventories of both existing and new homes have led to moderate price increases overall. Apartment construction remained robust, but contacts said that leasing activity slowed. Outlooks are positive through year-end.
Contacts in the commercial real estate industry said that demand for office and industrial space continued to increase since the last report. Contacts said that some businesses were holding back on expansions due to uncertainty, but overall outlooks remained positive. Investment activity remains less aggressive than earlier in the year, although some contacts noted that investment in apartment development remains quite strong.
Financial institutions reported mixed loan demand. Contacts said used auto lending was weak, while first mortgages and energy-related lending increased. Loan pricing continues to be very competitive, partly due to loosening credit standards. Despite low deposit rates, deposit levels at most institutions remain high. Contacts expressed concern about new regulations for community banks.
Respondents at energy-related service firms said activity remained steady at high levels despite a decline in the rig count that was mostly natural gas related. Although oil prices remain at healthy enough levels to support current activity, recent price declines coupled with high volatility are making some firms nervous about drilling in higher cost fields. Contacts expect activity to be flat through year-end, with improvement in 2013.
The District remained largely in drought, although dry conditions eased in some areas. The crop harvest generally progressed at a good pace. Winter wheat crop conditions were much better than last year, when the drought was more severe in the District. Grain prices trended down over the reporting period but were still at relatively high levels. Cotton prices remained weak and may lead to fewer cotton acres being planted next year. Cattle prices were still higher than normal but contacts noted that high feed costs were keeping producers from expanding their operations and were creating negative margins for feedlots.
Find the full Beige Book report at www.federalreserve.gov/monetarypolicy/beigebook/default.htm