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Dallas Beige Book

March 2, 2016

Economic activity in the Eleventh District was flat over the last six weeks. Manufacturing weakened modestly and reports from nonfinancial services firms were mixed. While real estate and financial services activity continued to expand, retail sales declined and the energy sector contracted further. Reports of price pressures and employment trends were varied, but there was an uptick in price concessions and layoffs from the prior reporting period. Outlooks were still somewhat optimistic, although generally cautious, with several mentions of low oil prices driving uncertainty.


Price pressures over the reporting period were mixed, although reports of deflationary pressures were slightly more prevalent than they have been in the recent past. Retailers noted more promotional pricing than is common for this time of year, and auto dealers said the competitive auto market has led to a very favorable pricing environment for customers through manufacturer rebates and dealer incentives. Staffing services firms mentioned pressure from clients to reduce prices and fees. Transportation firms and airlines lowered their prices, largely due to excess capacity and lower fuel costs. Price reports among manufacturers were mixed, with some noting a negative impact from the stronger dollar. Meanwhile, professional and technical services firms noted higher prices year over year.

Oil and natural gas prices moved lower over the past six weeks, affirming pessimistic outlooks for the energy sector for 2016. Although fuel prices fell, refiners' margins remained robust.

Labor Market

Employment reports were mixed, with more instances of layoffs than in the prior reporting period. Retail employment was down slightly over the period, with one contact laying off people and another announcing store closings, both due to weak sales. A couple of transportation firms laid off workers or offered buyouts to employees, and in the energy sector, further employment cuts were underway. In contrast, hospitality contacts said they continued hiring at a steady pace. Auto dealers said they were hiring some mechanics returning from the oilfields but were generally treating them as temporary workers, assuming they might leave when oil prices go back up. Banks and professional and technical firms noted higher headcounts year over year.

Wages were flat to up from six weeks ago. Staffing services contacts said wage pressures have eased, especially in Houston where some downward pressures have been reported. However, contacts across several industries noted difficulty finding workers. Shortages of truck drivers remained, and construction and petrochemicals contacts continued to note a tight market for skilled or specialized labor.


The manufacturing sector seems to have weakened slightly over the reporting period, with contacts citing the decline in the energy sector and the strength of the dollar as the dominant headwinds. For fabricated metals and machinery manufactures--whose customer base is often more concentrated in the energy sector than other manufacturing--the energy downturn was taking a toll on some firms, resulting in reduced demand, more pessimism, and layoffs and facility closures. A primary metals manufacturer also noted that the downturn in the energy sector was depressing their production and outlook. Modest growth persisted in high-tech manufacturing, and construction-related manufacturers continued to fare well, citing strength in homebuilding activity.

Refinery utilization rates remained robust. Gulf Coast chemical producers reported softer global demand and a stronger dollar as sources of continued weakness in year-over-year comparisons. Expectations for 2016 remain positive for refineries but less rosy for chemicals producers.

Retail Sales

Retail sales generally softened this reporting period. Contacts blamed the unseasonably warm weather (which hampered cold-weather apparel sales), the stronger value of the dollar, and the decline in oil prices for causing the decline in sales. Most contacts reported that Texas' retail performance was worse than the rest of the nation. Outlooks were mixed.

Automobile sales slowed, partly due to typical seasonal sluggishness, but sales were also lower than a year ago. Contacts cited uncertainty, a decrease in consumer confidence, and weakness in the energy sector as driving factors. Contacts were mostly optimistic for business in 2016, but they expressed a little more concern for the outlook than in recent periods.

Nonfinancial Services

Demand for nonfinancial services varied over the past six weeks. Staffing services firms said demand was flat to down, with contacts noting that weakness was concentrated in Houston and that the effects of sharply lower oil prices continued to spread into energy-related services and manufacturing. Demand for professional and technical services increased slightly, with strength coming from the real estate and medical sectors. For transportation services firms, cargo volumes declined except for small parcels which saw a surge early in the year. Rail cargo was down in every category except autos. Airlines noted weaker demand than last year at this time, with weakness continuing to come mainly from travel to South America.

Leisure and hospitality demand grew at a modest pace on net. Activity in major markets such as Dallas and Austin continued to grow at a moderate pace but activity in the oil patch continued to slow. The outlook for the first half of 2016 remained positive but cautious, with the largest concerns relating to minimum wage legislation and slowing demand if the weakness in the energy sector spreads further to other industries and regions of the state.

Construction and Real Estate

Housing demand improved during the reporting period. Home sales were generally off to a good start this year, following a seasonal slowdown toward the end of last year. Sales of moderately-priced homes were solid. Dallas-Fort Worth remained the strongest market, and some contacts said sales in Houston were not as weak as anticipated. Builders were focused on completing homes in the pipeline. New home prices generally remained elevated, and outlooks were positive except in Houston.

Demand for office space remained strong in Austin and Dallas-Fort Worth, but continued to soften in Houston, where rent concessions were being offered. Industrial leasing was mostly active and vacancies remained tight. Outlooks were positive with the exception of the market for office space in Houston.

Financial Services

Loan growth continued to slow over the past six weeks. Business lending, including commercial and industrial loans and commercial real estate, increased but at a slower pace. Contacts noted that uncertainty due to low oil prices continued to suppress demand. However, consumer loans, including mortgage and auto lending, grew at a steady clip. Loan standards tightened, especially for energy-sensitive projects, where loan quality is beginning to deteriorate. Deposit growth showed signs of tapering off. One contact noted that they raised interest rates on deposits in step with the Federal Reserve's recent increase in the target interest rate. While overall effects from energy-sector weakness appeared to be contained, contacts said they were guarded about 2016 growth prospects due to additional uncertainty from financial markets and monetary policy.


Demand for oilfield services remained depressed as drilling continued to decline. Capacity utilization of equipment was reported to be below 50 percent. An oil producer said they lowered their number of active rigs in the oilfield and were considering deeper cuts to 2016 capital expenditures than they projected late last fall.  At recent pricing and demand, the financial positions of many firms continued to deteriorate, particularly smaller firms. Outlooks remained somber for 2016, with worry that mid-2016 will bring more defaults, bankruptcies, and mergers and acquisitions.


Soil moisture conditions remained healthy, with only 2 percent of Texas considered abnormally dry in February, compared with 56 percent last year in some level of drought. While prospects for 2016 crop production are strong, farmers face low prices and downward pressure on exports because of the strong dollar. Industry contacts said many producers will not be able to cover their production costs at the current crop price levels, and some have received calls from their lenders voicing concern. Cotton--Texas' top crop--has seen prices push even lower with risks to the downside. Contacts reported that low prices and weakening demand will likely result in fewer cotton acres planted this year. Milk prices continued to drift unprofitably low, despite the supply disruption in the wake of winter storm Goliath, which killed roughly 30,000 dairy cows in West Texas and New Mexico. Cattle prices were lower than the record levels posted a year ago but are still relatively high.

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