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June 4, 2014 · Dallas Beige Book Reports

The Eleventh District economy grew at a moderate pace over the past six weeks. Most manufacturers reported an increase in demand. Retail and automobile sales strengthened. Demand improved or held steady in most nonfinancial services industries. Activity in the housing sector was robust, and office and industrial leasing activity remained strong. Growth in loan demand increased. Drilling and oil field services activity remained solid, while agricultural conditions worsened. Price increases were noted in some industries. Employment was flat to up slightly, with several reports of wage pressures. Outlooks were optimistic across most industries.


Most responding firms said prices were stable to up slightly over the reporting period. Manufacturers noted higher selling prices for scrap metal and a few contacts reported rising food prices, particularly for dairy, meat and produce. Airlines said airfares and fees continued to increase. Retail prices were mostly unchanged and vehicle selling prices held steady, although auto dealers said rebates were being offered by some auto manufacturers. In contrast, an aircraft parts manufacturer said selling prices were down from year ago levels, and a transportation services firm noted a decline in fuel costs.

Natural gas prices rose from April to early May, but fell back in mid-May to a level similar to the beginning of the reporting period. The price of West Texas Intermediate was flat over the reporting period. Retail gasoline prices increased over the last six weeks, while on-highway diesel and feed stock prices were flat.

Labor Market

Employment levels held steady or increased at nearly all responding firms and some contacts noted continued difficulty in finding skilled workers. Food, cement, lumber, primary metals, fabricated metals and transportation equipment manufacturers noted continued hiring. An automobile dealer noted plans to hire several workers for a new body shop that will be opening later this year, and an airline reported hiring pilots and flight attendants in the last six weeks. Energy industry contacts said increased appetite for drilling in the Permian Basin was exacerbating an already tight labor market, and housing sector contacts continued to report construction worker shortages.

There were several reports of upward wage pressure. A staffing firm said that employers are paying higher relocation bonuses for talented personnel, particularly engineers. Wage pressures appeared to be the strongest for skilled workers in the energy and construction sectors, but staffing firms, high tech, transportation equipment, fabricated metals and lumber manufacturers also noted upward pressure. A primary metal manufacturer raised wages for hourly employees, and a few firms noted increases in health insurance costs.


Reports from manufacturers were mostly positive, although there were a few reports of slowing demand. Construction-related manufacturers reported mixed demand. A lumber contact reported a pullback in demand since the last report. Cement producers said demand held steady or increased slightly because of favorable weather conditions, but one respondent noted that the lack of developed lots in Houston was affecting business. Primary metals producers noted very strong demand in April but a slow start to May, and fabricated metals manufacturers saw a broad-based increase in orders.

High tech manufacturers said that growth in sales and orders continued at a moderate pace, largely due to increases in overall consumer demand and growth in new products such as cloud services and wearable electronics. Inventories were at or near desired levels. Most firms expect growth to continue at a moderate to slightly faster pace, although one contact noted that there is still a considerable amount of uncertainty about the industry outlook.

Food producers reported steady demand, and transportation equipment manufacturers said demand was flat to up over the last six weeks. Refinery utilization rates rose over the reporting period with winding down of the spring maintenance season. Chemical producers reported lower production rates. Outlooks of refiners and chemical producers remained positive.

Retail Sales

Retail sales strengthened during the reporting period boosted by favorable weather conditions and a late Easter holiday that shifted sales into April; demand was up in the mid-single digits from last year's levels. Strength was noted in apparel, handbags, patio furniture and sporting goods. Two national retailers said that demand in Texas continued to outperform the national average. Outlooks were positive.

Automobile sales increased since the previous report. Respondents noted that sales were particularly strong in April, and demand was up year over year. Inventories varied by manufacturer, and generally were not a source of concern. Automobile contacts expect continued growth in sales through year-end.

Nonfinancial Services

Demand for most nonfinancial services was flat to up since the last report. Staffing firms said growth in orders was mixed. One contact reported a slight decline in the pace of activity, while another contact reported that demand for direct hires in April was the highest in 10 years but orders slowed somewhat in May. Overall demand remained strong, and some contacts were more optimistic than they were six weeks ago. Accounting firms said demand held steady at high levels. Tax business continued to wind down but audit and transactions work remained strong. Demand for legal services decreased in the last six weeks, mainly stemming from a decline in litigation activity. Real estate related business continued to grow, and corporate work remained softer than desired. Contacts at law firms were less optimistic in their outlooks.

Transportation service firms said overall cargo volumes increased over the reporting period and outlooks were mostly positive. Intermodal cargo volumes climbed up over the last month but were flat year over year. Railroad contacts reported a broad-based increase in volumes, with particular strength in shipments of crushed stone, lumber and wood, motor vehicles and nonmetallic minerals. Small parcel shipments grew at a faster pace in April, with growth in demand driven by strength in retail trade.

Passenger airline demand improved over the reporting period. Demand was up from year ago levels, and contacts noted that the outlook has improved modestly.

Construction and Real Estate

Activity in the housing sector was strong over the reporting period. Respondents reported a seasonal pickup in both traffic and home sales, although one contact noted a slight slowing in the pace of activity. Home prices continued to increase but at a slower pace than last year. Land and lot prices remained elevated due to limited supply, and one contact noted that it is becoming difficult to underwrite loans in a few areas at these prices. Robust apartment demand continued to keep vacancies low even with high levels of construction activity. Moderate increases in rents were reported in several major Texas metros. Housing and multifamily contacts were optimistic in their outlooks.

Office leasing activity remained robust, and contacts noted strong growth in rents. Occupancy remained at high levels, and contacts in Houston said they are beginning to see interest from foreign investors. Demand for industrial space was strong, especially in Dallas. Outlooks for Texas commercial real estate remained positive.

Financial Services

Growth in loan demand picked up slightly in the last six weeks. Commercial and residential real estate lending improved modestly as projects continued to respond to the growth in metro areas. Mortgages and home equity lines of credit gained traction after some softness in previous months. Demand for auto loans rebounded, and other types of consumer loans edged up slightly. Loan quality continued to improve and loan rates remained low due to strong competition for borrowers. Deposit volumes held steady and rates remained low. Outlooks were improved; however, contacts noted that regulatory burden remained costly and frustrating.


Demand for oilfield services was robust in the Eleventh District. All of the increase in the Texas rig count came from drilling activity in the Permian Basin in West Texas, and contacts said that oil field service equipment in the Permian Basin was essentially leased out for the year. Margins for oilfield service providers were up in the Permian Basin, but remained very tight in the Eagle Ford region. Geological service firms continued to see robust demand. Outlooks for the second quarter were positive.


District drought conditions worsened further over the reporting period. Most of the Texas panhandle fell into exceptional drought, the most severe drought classification. Winter wheat crop conditions deteriorated and a relatively large share of Texas' wheat acres were abandoned and will not be harvested this year. Cotton planting season began and farmers were already concerned about poor production due to the very dry soil, particularly for dryland cotton. Agricultural commodity prices stayed strong. Export sales for cotton fell over the last six weeks in response to high cotton prices.

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