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Dallas Beige Book

October 19, 2016

Economic activity in the Eleventh District expanded moderately over the past six weeks. Manufacturing activity rose, and demand for nonfinancial services increased. Retail sales held steady and automobile sales remained strong. Real estate activity was flat to up in most markets. Loan demand was mixed. Demand for oilfield services stayed depressed, although drilling activity ticked up. Agricultural growing conditions remained favorable, but prices fell further. Overall employment growth picked up slightly, while prices held steady. Outlooks remained generally positive but cautious.


Prices held fairly stable over the reporting period. Some upward pressure on input costs continued, while selling prices remained largely flat. Real estate contacts noted that land and lot prices generally stayed elevated, and home construction costs remained high. Oil and natural gas prices held fairly steady despite recent volatility, and prices were generally supportive of very modest increases in activity in the oil and gas sector. Energy contacts noted that an oil price above $50 per barrel is needed to materially accelerate the recovery in the industry. Exploration and production contacts noted that the prices from services companies are still generally trending down and that they believe they will be able to hold on to most of the cost concessions gained thus far.

Employment and Wages

Employment reports were more positive than during the prior reporting period. Employment levels continued to hold steady or rise among most services contacts, although declines were seen among some transportation services firms. Most manufacturers noted stable employment levels, and several reported hiring, reflecting the stabilization seen in that sector recently. Energy firms noted that layoffs were mostly done, and that the industry was holding on to as much of its talent as it could.

Wage pressures remained minimal, although several manufacturers noted upward pressure resulting from a shortage of skilled and unskilled workers. Shortages of health care professionals and construction workers persisted.


The manufacturing sector expanded over the reporting period, and outlooks were more positive than in the last report. Output increased for both durables and nondurables, although some continued weakness was seen in energy-related manufacturing (such as fabricated metals and machinery). High-tech and transportation manufacturing remained growth leaders, while construction materials demand growth was more muted. Contacts continued to point to lower exports as a headwind, citing challenges with international demand due to the strong dollar.

Refinery utilization rates continued to be healthy, although large inventories and soft global demand were still keeping a lid on margins. Gulf Coast chemical producers saw mixed demand, in line with the headwinds of a strong dollar and moderating international demand.

Retail Sales

Retail demand was flat overall. Retailers generally noted a pickup in Texas business activity in September, but there were reports of sales declines in certain regions and segments. Contacts noted slowing sales growth in border cities due to the sustained impact from the strong value of the dollar, and one contact noted continued sales declines at stores in the oil patch. Automobile sales declined less than is typical at this time of year and remained at very high levels. However, weakness persisted in the Houston auto market. Auto contacts were rather pessimistic in their outlooks, with concerns about how the presidential election will impact consumer spending.

Nonfinancial Services

Demand for nonfinancial services generally increased over the past six weeks, at a slightly faster pace than in the prior period. Staffing services firms said demand strengthened, with some contacts seeing very large increases, especially in the Dallas-Fort Worth area. A few contacts noted a pickup in staffing demand in Houston. Transportation services firms continued to report weaker cargo volumes, although increases in grain volumes were a bright spot. A rail contact noted petroleum shipments over the reporting period were down versus last year, but shipments of frac sand were up. Airlines reported stable demand, with domestic travel remaining strong. Firms in the healthcare sector noted rising revenues, while leisure and hospitality firms said business was flat to down. Outlooks among services firms were positive overall, but tempered by concern for continued low oil prices, weakness in the global economy, and uncertainty surrounding the presidential election.

Construction and Real Estate

Home sales were flat to up slightly during the reporting period. Sales of lower-priced homes remained solid, but there were reports of increased competition and slowing demand at mid to higher price points. Contacts in Austin noted a slight uptick in new home sales during the latter part of the reporting period. One contact described new home sales in Dallas-Fort Worth as choppy, and respondents in Houston reported continued softness. Home prices were elevated, but some incentives were being offered by builders, according to contacts.

Apartment demand continued to be healthy, and occupancy remained high. Rents rose further, with Dallas-Fort Worth seeing the fastest year-over-year growth among the major metros. Conditions were weak in the Houston apartment market, where increasing supply put pressure on rents and occupancy.

Office leasing activity remained solid in Dallas-Fort Worth, and rents were up from year-ago levels. In contrast, demand was weak in Houston, causing the office vacancy rate to rise further. Sublease space remained elevated in Houston but was being partly absorbed due to discounted rates. Office construction was elevated in Dallas-Fort Worth but slowed in Houston. Industrial demand was strong, particularly in Dallas-Fort Worth, and vacancy rates remained low in both Houston and Dallas-Fort Worth.

Financial Services

Loan demand was mixed over the reporting period. Although most contacts noted increased loan balances, there were some that reported declines. Small and mid-size mortgage loans continued to perform relatively well. Auto loan growth slowed a little, mainly because of the end of the summer season. Loan quality generally remained strong, partially due to lenders' continued caution in issuing loans. Credit standards stayed fairly conservative, especially for energy-related loans. Changes in deposit levels over the past six weeks were somewhat mixed, although the majority of contacts reported moderate growth in deposits. Interest rates paid on deposits remained unchanged, as did interest rate margins. Although outlooks were rather positive, contacts were still quite cautious.


Demand for oilfield services remained depressed in most of the Eleventh District, even as drilling ticked up (especially in the Permian Basin). Most contacts remained cautiously optimistic for the fourth quarter, but optimism for 2017 slipped. While the majority of contacts still believe 2017 will be a better year than 2016, expectations for next year have moderated in light of recent revisions to the oil demand outlook from the International Energy Agency.


Crop production prospects for 2016 remained strong across the district, with increases over 2015 production expected for most crops. Ample rainfall provided favorable pasture conditions and abundant forage, although it hampered the cotton crop in some areas. Already-low crop prices generally fell over the reporting period, and cattle prices dropped as well. Contacts continued to note that farmers were concerned about their finances and their ability to get adequate financing for next year.

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