Dallas Beige Book
April 16, 2014 · Dallas Beige Book Reports
The Eleventh District economy grew at a moderate pace over the last six weeks. Most manufacturers noted an increase in demand, although there were also reports of flat or slightly decreased activity. Retail and automobile sales increased and were above year-ago levels. Demand reports from nonfinancial services firms were mixed, but contacts were universally positive in their outlooks. Housing demand remained robust and home prices rose further. Loan demand grew at a slower pace than in the previous report. In the energy sector, oilfield services activity was robust and drilling increased, while drought conditions continued to negatively impact the agriculture sector. Price increases were noted in certain industries, but most contacts said prices were stable. Employment was flat to up slightly, with some reports of higher wages. Overall, industry outlooks were slightly more positive than six weeks ago.
Firms said prices were stable to up slightly over the reporting period. Manufacturers noted higher selling prices for steel, scrap metal, brick and cement. A few contacts reported rising food prices, particularly for dairy, meat and fresh fruit. Transportation services firms said an increase in fuel costs over the last six weeks led to higher shipping rates, and airlines noted slightly higher ticket prices. Retail prices were stable overall and automobile selling prices were unchanged, although automobile contacts said there were some additional manufacturer incentives and rebates available for consumers.
Crude oil prices rose in early March to a high not seen since last September, but ended the month at a level similar to the beginning of the reporting period, around $100 per barrel. Natural gas prices trended downward over the last six weeks, shedding much of the winter weather-related gains from earlier in the year.
Employment held steady or increased slightly at most responding firms. Transportation, food and construction-related manufacturers reported continued hiring. Retail employment was flat over the reporting period but contacts noted stronger year-over-year headcount increases in Texas stores than elsewhere in the United States. Energy contacts said the labor market for drilling and oilfield services remained very tight, and one firm noted that they would be doing more work if there was sufficient labor. A food manufacturer found skilled labor to be in short supply, and housing sector contacts continued to report shortages of construction workers.
There were several reports of upward wage pressures. Construction-related manufacturers said they had to pay truck drivers more, and an oilfield services firm noted definite wage increases. Upward wage pressure continued to be reported in petroleum refining, both in construction-type jobs and factory personnel. Two other manufacturers said they intend to give small raises in the near future.
Reports from manufacturers were mostly positive, with more reports of demand increases than in the last report, although some firms noted flat or weaker demand. Construction-related manufacturers said demand had generally increased over the last six weeks, although a few contacts said winter weather, especially on the East Coast, was still having a lingering effect on business, although less so than during the prior reporting period. A lumber contact noted that demand was almost as strong as it was in 2006. Fabricated metals manufacturers reported a broad-based increase in demand, with particular strength in highway construction and energy-related projects. Outlooks for the second quarter were mostly positive.
Respondents in high tech manufacturing reported that overall demand continued to grow at a moderate pace, with a few respondents noticing a slight but broad-based pickup in orders growth. Demand for logic devices was strong while demand for memory devices continued to be weak. Firms' outlooks were for continued moderate growth, with some increased optimism that growth would pick up slightly.
Transportation equipment manufacturers said demand held steady at high levels, and they expect business this year to exceed that of 2013. Food manufacturers reported a decline in demand that was largely weather related, but said demand was still above year-ago levels. Petroleum refinery utilization rates fell slightly over the reporting period, largely because of the start of the spring maintenance season and to a lesser extent due to the temporary closure of the Houston Ship Channel because of an oil spill. Margins for refineries and petrochemical manufacturers remained healthy.
Retail sales were stronger this reporting period, and demand was up from a year ago. Demand in Texas continued to outperform the nation, according to two national retailers.
Automobile sales strengthened slightly since the previous report, as the weather improved and the spring selling season began. Demand was up slightly year over year. Inventories were mostly at desired levels to a little high; contacts attributed higher inventories to the loss of selling days earlier in the year because of the weather. Retail and automobile contacts' outlooks for the upcoming quarter and the rest of the year were positive.
Nonfinancial services firms reported varying changes in demand from six weeks ago but were all optimistic in their outlooks for the months ahead. Staffing firms said demand was steady at high levels, with multiple contacts noting business was up more than 10 percent from last year. One firm cautioned that demand was shifting toward temporary placements rather than direct hires. Growth in the accounting sector slowed slightly over the reporting period due to seasonal factors, as the corporate tax return deadline passed in mid-March, but activity remained robust and above year-ago levels. Demand for legal services picked up, with particular strength in real estate business. Litigation ticked up in Austin but slowed elsewhere in Texas.
Transportation services firms noted mixed demand. Railroad, small parcel and air cargo volumes increased slightly while container and intermodal cargo volumes decreased. A small parcel firm noted strength in retail trade, and a railroad firm noted increased volumes of crushed stone (largely used for road construction) but weakness in motor vehicle and drilling sand volumes.
Airline demand was slightly soft, partly due to numerous storms in the past six weeks causing cancelled business trips. Demand was stronger than a year ago and passenger revenue per seat mile is expected to be up in April and May across the industry.
Construction and Real Estate
The district housing sector remained strong over the reporting period. Single-family home sales volumes remained healthy, with some contacts reporting a seasonal pickup in demand over the past six weeks. Home prices continued to trend upward and inventories remained low. A contact in Dallas noted that low inventory levels were bidding up prices above asking prices in high-demand areas. Contacts expect demand for single-family homes to stay strong this year. Apartment demand remained solid. Construction activity continued at a brisk pace, especially in Austin. Rental rate growth accelerated in Dallas and Houston from already solid levels and was holding strong in Austin, according to contacts. The outlook for the multi-family market remained positive.
Office and industrial leasing remained robust, with one contact noting particularly strong demand for office space in Dallas. Rents continued to trend upward and occupancy levels remained high for office space. Contacts in Houston reported high levels of office development. Overall, the outlook remained generally positive and respondents expect demand to stay strong this year.
Growth in loan demand softened slightly in the last six weeks. Demand for commercial and residential real estate loans was weaker than expected, although it improved somewhat. Consumer loans continued to grow moderately, and lending to mid-sized firms continued to tick upward. Loan quality remained high. Deposit volumes were healthy and grew moderately. Contacts noted continuing frustration with regulatory burden, but outlooks remained optimistic.
Demand for oilfield services was very healthy in the Eleventh District over the last six weeks, particularly in West Texas. Much of the increase in U.S. drilling over the reporting period came from Texas. March demand exceeded expectations and led to improved second-quarter outlooks.
District drought conditions continued to worsen in March, particularly in the Texas panhandle which is where much of the state's cotton is grown. Winter wheat crop conditions deteriorated somewhat. Agricultural commodity prices rose over the reporting period, with across-the-board increases in crop prices and particularly strong gains in livestock prices. Beef prices rose to record highs in March in light of strong exports and stable domestic demand coupled with tight cattle supplies. Dairy demand boomed, especially exports, and prices for dairy products moved to record highs. According to respondents, the rise in prices has allowed all segments of the livestock industry to be profitable, an occurrence not all too common.
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