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January 15, 2014 · Dallas Beige Book Reports

The Eleventh District economy expanded at a moderate pace over the past six weeks. Manufacturing activity continued to increase overall and outlooks were quite positive, although there were a few reports of weaker demand. Retail and automobile sales reports were mixed, and nonfinancial services firms generally reported improved demand. Sales of single-family homes improved slightly, and apartment, office and industrial leasing activity held steady. Loan demand edged up at financial institutions. Prices increased mildly at several responding firms, and employment held steady or rose modestly. There was a pickup in reports of pay increases and wage pressures. Industry outlooks were positive, and several were more optimistic than during the prior reporting period.

Prices

Most responding firms said prices were stable to up slightly over the reporting period. Fabricated metals producers noted rising prices and input costs, and some food producers said prices rose slightly. Some transportation service firms said prices were up slightly, partly due to rising fuel costs, and an airline respondent noted an increase in ticket prices. Accounting and legal firms expected to raise rates in the near term. Retail and auto contacts said prices were stable, and retailers anticipated normal holiday markdowns. A housing contact noted an increase in builder costs was leading to higher new home prices, although some contacts said home prices were rising at a somewhat slower pace.

Energy prices increased over the reporting period. The price of West Texas Intermediate crude oil rose since the last report, and natural gas prices increased to the highest level since mid-2011. Domestic prices for gasoline and diesel also moved up.

Labor Market

Employment levels held steady or increased slightly at most responding firms. Staffing firms said employment levels were up, particularly in professional and technical recruiting areas. Some food, fabricated metals, and transportation manufacturing firms noted continued hiring, and scattered reports of adding workers came from auto dealers and high-tech and accounting firms. Other respondents noted steady employment levels while one high-tech firm made cuts and a transportation services firm continued with an incentivized voluntary buyout to reduce employment levels. Acute labor shortages were reported for auditors, engineers, construction workers and truck drivers.

Reports of upward wage pressure increased. Staffing firms said there was pressure on wages and one began offering signing bonuses. Legal firms cited increased pressure on compensation for corporate associates. Wages rose in metals manufacturing, and petrochemicals producers noted rising wages for plant maintenance and heavy construction as well as several skilled positions. A Houston housing contact said labor shortages were pushing up wages for construction workers.

Manufacturing

Reports from manufacturers were mostly positive with a few occurrences of seasonal or weather-related weakness. Construction-related manufacturers reported slow demand in early December due to poor weather, but business bounced back soon after. Demand for primary metals softened seasonally over the reporting period but was slightly better than what is typical for this time of year. Fabricated metals manufacturers reported very strong demand and said sales were up notably from last year. One contact said his company is able to pick the work they will bid on for the first time in a few years. Energy-related manufacturing increased slightly over the reporting period and demand growth continued for food producers, with sales up about 10 percent from a year ago. Paper producers noted that demand was flat to down from six weeks ago yet was slightly stronger than normal. Contacts across the board said sales outlooks were positive.

High-tech manufacturers said sales have been flat to down slightly since the last report. One contact noted that sales of memory chips continued to grow at a strong pace but that sales of logic devices remained weak. Respondents said they were cautiously optimistic about the outlook for the first half of 2014. Most expect modest growth and some reported that they were more likely to be surprised by strong growth rather than a sharp decline.

Contacts noted that petroleum refinery utilization rates strengthened with the end of the fall maintenance season and rising exports. Chemical production was flat to up depending on the product, and year-over year growth in Gulf Coast chemical production continued to slow.

Retail Sales

Retail sales reports were mixed over the past six weeks, ranging from much stronger due to holiday shopping, to a slight decline. Texas' sales performance was in line with or better than the nation, according to national retailers. Gift items were, as normally, strong sellers, while big-ticket items experienced weakness. Contacts were optimistic in their 2014 outlooks.

Automobile sales reports were also mixed. Dealers in the Dallas-Fort Worth area were negatively impacted by the ice storm in early December, but other areas saw slightly improved demand. Year-over-year demand was up. Respondents expected a good finish to 2013 and were optimistic for 2014.

Nonfinancial Services

Most nonfinancial services contacts reported stronger demand. Staffing firms said demand increased over the past six weeks, with one contact reporting a significant rise in demand for workers in engineering and technical professions. Another contact noted the highest demand for temporary workers in the past 10 years. Outlooks were positive for the first part of 2014, but some contacts remained concerned about the impact of the Affordable Care Act on business. Accounting firms said demand increased modestly across most lines of business, and contacts noted transactions work was extremely busy. Outlooks remained positive, with a healthy pipeline for future business. Legal firms saw steady growth over the past six weeks. Demand increased slightly in litigation and corporate work, and real estate work continued to grow at a strong pace. Contacts were cautiously optimistic in their outlooks.

Transportation service firms noted mixed demand. Intermodal cargo volumes fell slightly during the reporting period but were even with year-ago levels and air cargo volumes fell slightly. Railroad contacts said cargo volumes grew fairly strongly compared with the same period a year earlier as most categories showed positive growth, including petroleum, chemicals and motor vehicles. Small parcel shipping accelerated during the reporting period, with retail trade remaining the strongest driver of growth. Outlooks were mixed; rail volumes are expected to see strong growth heading into 2014, while other contacts expect slower growth.

Airline demand was mostly unchanged. One contact noted broad-based growth across most customer segments while another noted that demand had slowed seasonally but was up from last year. Outlooks were generally more optimistic than six weeks ago.

Construction and Real Estate

Single-family new home sales and buyer traffic picked up over the past six weeks, although sales remained below year-ago levels. Houston was an exception, with contacts reporting sales above last year's strong activity. While new home construction slowed in some parts of the District, contacts expect it to increase in early 2014 because of extremely low home inventories. Apartment demand remained steady, and contacts said multi-family construction remained at elevated levels. Some respondents said increases in building costs could slow activity going forward.

Office and industrial leasing activity remained stable, according to contacts. Investment activity slowed, however, and rising rents and high occupancy levels may be keeping some building owners from selling. Outlooks remained positive, and one respondent expects a large increase in commercial construction activity in 2014.

Financial Services

Loan demand ticked up for most lines of business over the past six weeks. Auto lending, personal loans, mortgages, and mergers and acquisitions increased slightly, but retail was mostly flat compared with last year. Loan pricing remained competitive, with mortgage rates only rising slightly. Respondents said the quality of loans continued to strengthen, and deposit volumes increased moderately with no corresponding changes in deposit rates. Outlooks were cautiously optimistic as year-end reports showed steady improvement, albeit at a mild pace, and regulatory changes continue to take effect.

Energy

Demand for oil-field services increased slightly over the last six weeks. Drilling activity in Texas was particularly strong, both inland and offshore, according to respondents. Shale-driven activity was heating up in the Permian Basin, and that play is a bright spot for growth in 2014 for North America. Contacts expect 2014 energy activity to be better than 2013 but not as good as 2012.

Agriculture

Drought conditions in the District continued to ease slightly. The winter wheat crop has had a good start, with crop conditions in better shape than they were a year ago. Severe winter weather in many parts of the state in late November and early December slightly delayed some of the cotton harvest, but the moisture improved soil conditions. Cattle producers continued to benefit from low feed prices and high selling prices, prompting optimism for the industry outlook.

Find the full Beige Book report at www.federalreserve.gov/monetarypolicy/beigebook/default.htm

 

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