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Eleventh District Beige Book

May 31, 2017

Summary of Economic Activity

The Eleventh District economy continued to expand at a moderate pace over the past six weeks. Manufacturing output rose, and activity in nonfinancial services increased. Retail sales strengthened slightly, despite some reports of softening in auto sales. Housing demand grew, lending activity increased, and the energy sector saw further improvement. Production prospects for crops were mostly favorable. Employment and wages rose, as did prices. Outlooks generally improved, although a few firms noted they were in wait-and-see mode due to uncertainty surrounding U.S. trade policies.

Employment and Wages

Overall employment rose moderately, and upward wage pressures were similar to the last report. Manufacturers added to payrolls, with some noting that labor shortages were putting pressure on wages. Hiring in the services sector continued, including slight job gains in retail. The construction labor market generally remained tight, although a slight easing in the availability of workers and an easing in upward wage pressures was noted. Staffing firms noted a surge in demand for white-collar workers in the oil and gas industry, and energy firms cited upward wage pressures, particularly for certain skills sets and experienced personnel. Leisure and hospitality contacts said they have not been able to fill many entry-level and seasonal positions due to a lower number and inferior quality of applicants compared with past years.


Selling prices generally increased over the reporting period. An exception was in retail, where prices held steady. Some leisure and hospitality contacts reported increased pricing power, and oilfield service firms reported higher prices, reflecting a pickup in demand for their services. Construction contacts noted higher lumber prices, while auto dealers reported downward pressure on margins, particularly for new vehicle sales. Retail gasoline and diesel prices fell over the reporting period as softer oil prices, high product inventories and slowing demand growth weighed on markets. Cattle prices experienced a strong spring rally, supported by solid domestic and international demand for beef. Corn and sorghum prices remained near breakeven levels, while wheat prices were below production costs.


Expansion in the manufacturing sector continued over the past six weeks. Output growth picked up for nondurables, and remained positive for durables, particularly for nonmetallic mineral product, primary metals and fabricated metals manufacturing. Outlooks stayed positive, although a few firms expressed concern regarding trade policy uncertainty.

Refinery utilization rates increased across the U.S. as the spring maintenance season wrapped up. Contacts said that 2017 will likely be a difficult year for the refining business because large product inventories and expectations of slower demand growth will likely keep margins low. Gulf coast chemical producers noted both healthy global demand and margins. The outlook for domestic chemical manufacturers remained optimistic due to expectations of persistent raw materials cost advantages over their international counterparts.

Retail Sales

Retail sales rose at a slightly faster pace than the previous reporting period, and outlooks were positive. Contacts continued to express concern about weak sales along the Texas-Mexico border, although luxury retailers in this region were expected to fare better than other retailers. Auto sales rose but there were some reports of softening in sales. Contacts said auto dealers were seeing rising inventories and declining margins. Auto lenders have tightened credit amid an increase in delinquencies.

Nonfinancial Services

Demand for nonfinancial services expanded moderately over the past six weeks, and outlooks remained fairly optimistic. Most staffing firms said demand increased since the last report, and all contacts noted that orders were up year over year. Staffing demand remained particularly strong in Dallas, and Houston saw an uptick as well, albeit a smaller one. Professional and technical service firms cited revenue gains, with several firms noting a pickup in activity. Transportation service firms mostly reported higher revenues and increased cargo activity. Rail cargo rose, with continued strength in shipments of grains and crushed stone, which is used for fracking sand. Air and parcel shipments were up, while trucking cargo volumes were flat. Reports from the leisure and hospitality sector were mixed, with some noting increased activity and others reporting declines.

Construction and Real Estate

Home sales rose during the reporting period, although respondents noted persistent softness at the higher end. Contacts said the spring selling season was shaping up well, with year-to-date sales mostly on or ahead of plan for builders. However, buyers remained price sensitive, making it difficult to raise prices despite higher costs, squeezing builders' margins. Contacts said builders are becoming more selective in lot purchases due to high prices, and some are shifting their focus to bringing more moderately priced products to market. Outlooks were positive, and overall sentiment in Houston was more upbeat than this time last year.

Apartment leasing activity in Houston was better than expected, and one contact noted that absorption (year to date through April) was slowly returning to a more normal pace. Apartment construction remained elevated in Dallas-Fort Worth (DFW), but was moderating in Austin. Financing for new multifamily properties remained difficult to obtain.

Office leasing activity was solid in DFW, but continued to be sluggish in Houston. Industrial demand was holding up in DFW, but there was some concern about the elevated level of construction.

Financial Services

Loan demand increased in the district over the reporting period. Total loan volumes expanded, with a substantial portion of the gains concentrated in commercial and industrial (C&I) lending and in residential and commercial real estate (CRE) loans. Lenders reported higher net interest margins and non-interest income, improved loan performance, and a slight tightening of credit standards on C&I and CRE loans. Deposit volumes expanded over the past six weeks, supported by an increase in interest rates. The outlook for the next six months or so was mostly optimistic, with expectations of improved loan demand and business activity.


Demand for oilfield services continued to improve, and firms noted receiving higher prices for their services, particularly in the Permian Basin. Drilling activity rose further in the Permian and Eagle Ford regions. Several contacts said the increase in the rig count is likely not sustainable and expect that it will taper off or even plateau around mid-2017. Outlooks remained positive, although contacts were more guarded in their optimism compared with the previous report.


Moisture levels remained favorable across the district. The wheat crop was in good shape and harvest was getting underway, although acreage was down from last year because prices were below the cost of production. Production prospects for corn and sorghum were strong. This year is expected to be a good one for Texas cotton, with a sharp rise in acres planted prompted by relatively high prices, and strong yields expected due to good subsoil moisture. Demand for cotton continued to be strong, particularly for exports.

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