Dallas Beige Book
April 17, 2013 · Dallas Beige Book Reports
The Eleventh District economy expanded at a slightly faster pace over the past six weeks than during the previous reporting period, when growth was moderate. Many manufacturing firms noted that activity increased since the last report. In the nonfinancial services sector, legal and accounting demand increased, although staffing firms reported sluggish demand. Retail sales and auto sales were up. Robust housing demand led to price gains, and commercial real estate activity remained strong. Lenders noted moderate growth in loan demand, and activity in the energy sector remained at high levels. Drought conditions remained prevalent in the agricultural sector. Reporting firms said prices remained stable overall, and there were limited reports of wage pressure. Employment levels were steady to up.
Most responding firms said prices were stable, although housing contacts said home prices increased at a fast pace, and cotton prices increased according to agriculture contacts. Staffing firms noted no change in rates, and accounting firms said rates were flat to slightly up. Food producers said selling prices were up since January but do not expect more increases going forward. One airline said ticket prices were up slightly. Retail prices and auto prices were steady. Financial services contacts said loan pricing was flat to down. Oil prices fell slightly, as the price of WTI averaged under $94 per barrel over the past six weeks. A late winter reduced natural gas inventories and pushed prices above $3.65. Gasoline and diesel prices increased since the last report.
Employment held steady or increased at most responding firms. Food manufacturers and airlines said employment had increased, and reports of scattered hiring came from some accounting and finance firms, retailers, auto dealers and transportation manufacturers. Several contacts noted difficulty finding qualified people to fill open positions, particularly in banking, auto sales and manufacturing. Staffing firms said the supply of labor was tight in the Houston energy sector.
Wage pressures remained largely subdued, although wage increases for experienced or top-performing workers were reported in accounting, legal and financial services. Increased labor costs were also noted in energy services.
Construction-related manufacturers said demand was flat to up slightly. A lumber contact noted a seasonal increase in demand for the first time in several years. A cement producer said demand remained strong, particularly for residential construction projects. Expectations among construction-related producers are for increases in demand, and contacts believe 2013 will be stronger than 2012. Fabricated metals producers reported a broad-based increase in demand over the reporting period. Demand reports from primary metals manufacturers were mixed and below year-ago levels.
Reports on high tech orders were mixed across customer groups. Semiconductor producers reported stronger demand from industrial users, such as automotive, but continued weak demand from communication device and personal computer manufacturers. Most contacts expect moderate improvement over the next three to six months.
Demand for paper products fell over the reporting period; contacts remained cautious in their outlooks but expect to see an increase in May or June. Food contacts noted demand was much better than anticipated and was up from the last report and from a year ago. Respondents were making significant capital expenditures in anticipation of further increases in activity.
Transportation manufacturers noted a pickup in demand. Sales of recreational vehicles increased after experiencing a seasonal slump during the last reporting period. Demand for aviation equipment continued to rise due to a recent large project. Transportation manufacturing contacts expect 2013 to be about the same or better than 2012.
Petrochemicals producers said Gulf Coast chemical production was stronger than a year ago. Contacts noted refinery operating rates and margins were up over the reporting period, partly due to normal seasonal trends.
Retail sales were up since the previous report and from a year ago, according to contacts. Texas continued to perform well, and according to one national retailer the rate of sales growth in Texas outperformed the nation during the reporting period. Prices remained stable since the last report. Some contacts added employees in line with expanding operations. Outlooks for the quarter ranged from cautiously positive to good, and contacts expect steady growth for the remainder of the year.
Automobile sales were strong and picked up since the last report, partly due to seasonality. Inventories varied by manufacturer, but all contacts noted inventories were slightly lower than desired. Selling prices held steady, as the market remained very competitive. Head count was up slightly from a year ago, and hours worked were flat over the reporting period. Outlooks for the second quarter and the rest of the year were good. Uncertainty and increasing expenses are challenges that dealerships continue to face.
Staffing firms said demand was flat or down since the last report. Responding placement firms noted activity in most sectors was sluggish, with the exception of energy-related activity in Houston and overall demand for residential construction workers. Outlooks were mixed, but better than earlier in the year. Accounting firms noted continued strong demand for their services. Demand for energy, audit, insurance, consulting work and transactions was robust, while demand for tax services remained flat. Outlooks were optimistic. Legal firms said growth in demand for their services was weaker than expected, with the exception of strong real-estate related activity. Outlooks were optimistic, with contacts expecting a pickup in activity over the next three months.
Reports from transportation service firms were positive. Railroad contacts said volumes picked up since the last report. Petroleum shipments continued to be strong, and contacts noted healthy volumes of some construction-related products, including lumber and wood and crushed stone. Intermodal cargo volumes increased slightly, and shipping companies said small parcel shipments grew strongly, propelled by retail trade. Air cargo volumes were flat during the reporting period as increases in domestic shipments were offset by declines in international shipments.
Airline contacts said passenger demand increased slightly since the last report, in part due to spring-break related travel. Contacts expect demand to strengthen in the summer months and the outlook is for slight improvement in 2013 over 2012.
Construction and Real Estate
Texas home prices rose rapidly due to strong demand and very low inventories. Some builders were still finding financing difficult. Outlooks for the single-family housing sector were positive, but price gains are expected to slow later in the year as building activity picks up. Contacts said apartment demand remains strong, in part, thanks to strong job growth and migration. Commercial real estate contacts reported that gains in occupancy and rents may be slowing property sales as owning has become more profitable. Most contacts noted banks were more aggressive with lending, and Texas office and warehouse markets were improving.
Financial institutions reported broad-based growth in loan demand. Consumer lending improved, with solid growth in mortgage and automobile lending activity. Commercial lending grew at a moderate pace, and energy-related activity remained strong in Houston, Austin, San Antonio and the Eagle Ford area. Commercial real estate and home equity lending activity has started to bounce back from low levels, noted contacts. Non-performing loans continued to decline. Loan pricing remained very competitive. Deposits and deposit rates remained mostly unchanged. Outlooks were optimistic, and contacts expect growth in loan demand and deposits to continue in the near term.
Energy activity was slightly improved, and respondents at energy-related service firms seemed more confident that the number of active drilling rigs may have bottomed out. Margins for services, particularly pressure pumping, remained tight, and contacts reported little change in pricing pressures otherwise. Contacts said drilling activity was flat over the reporting period and continue to expect improvement in the second half of the year, particularly in the Gulf of Mexico.
Drought conditions worsened slightly across the District over the reporting period. Nearly half of the Texas wheat crop was in poor or very poor condition, and spring crops were largely being planted into very dry soil. Texas feedlots continued to run negative margins, due in part to feed costs remaining elevated. Cotton was a bright spot, with continued strong demand and rising prices.
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