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Eleventh District Beige Book

A Special Note on the Impact of Hurricane Harvey
Hurricane Harvey created broad disruptions to economic activity along the Gulf Coast in the Dallas and Atlanta Districts, although it was too soon to gauge the full extent of the impact. Many firms and organizations in the affected areas closed due to flooding. A fifth of the oil and natural gas production in the Gulf of Mexico was offline, and many onshore producers in the Eagle Ford region temporarily stopped production. Harvey also affected fuel and petrochemical production, forcing fifteen refineries in the region to shut down temporarily and several others to operate at reduced capacity. Some areas experienced gasoline shortages, and supply was expected to remain tight in the Southeastern United States because of pipeline disruptions. Contacts in the Richmond District indicated that spot freight prices jumped after the storm, as freight was being redirected around the country. The Port of Charleston expected increased volumes in coming weeks as freight traffic is routed away from the Port of Houston.

Sept. 6, 2017

NOTE: The information included in this report was collected before Hurricane Harvey made landfall in Texas.

Summary of Economic Activity

The Eleventh District economy continued to expand at a moderate pace over the past six weeks. Manufacturing output strengthened, and activity in nonfinancial services increased. Growth in retail sales accelerated, in part due to a rebound in auto sales. Home sales rose slightly, but office leasing activity was mixed. Loan volumes expanded, while demand for oilfield services was flat. Crop conditions remained mostly favorable. Employment, wages and prices increased. Outlooks remained positive, although several contacts expressed concern that policy-related uncertainty would impact the broader economy.

Employment and Wages

Overall employment rose, and wage pressures were similar to or up slightly from the previous reporting period. Reports of labor shortages were widespread across sectors, particularly for skilled workers. Manufacturers added to payrolls, with some contacts noting that labor shortages were pushing up wages. The construction labor market generally remained tight. Hiring in the services sector continued, but employment in retail was flat. Hiring in the upstream energy sector slowed, and some firms were considering reducing staff in the second half of the year. Airlines also noted a slower pace of hiring. Two staffing firms cited wage pressure for lower-level manufacturing positions, and one contact noted wage pressure for higher-level IT and engineering workers.


Selling prices increased at a faster pace than in the prior report, and contacts noted upward pressure on input costs. Staffing firms said pricing was flat, although one contact noted renegotiating certain contracts at lower rates. Airlines said ticket prices were stable in the domestic market, but increased for South American routes. New home prices were flat, but there were several reports of incentives and/or discounts being offered, particularly on speculative inventory. Grain and cattle prices fell during the reporting period, prompting financial concerns for producers, and cotton prices were at breakeven levels. Gasoline and diesel prices rose over the reporting period following the increase in oil prices.


The pace of expansion in the manufacturing sector picked up over the reporting period. Output growth strengthened for durable goods, led by increases in transportation equipment, machinery, and computer and electronic product manufacturing. Demand for fabricated metal manufacturing edged up, however, a few producers cited seasonal or energy-related weakness. Among nondurables, food manufacturers saw continued strength in demand. Exports remained a source of weakness for some manufacturers who sell internationally. Overall, outlooks were positive, although some expressed concern about political uncertainty.

Refinery utilization rates increased along the Gulf Coast. Chemical producers noted healthy global and domestic demand and higher year-over-year production. Outlooks for chemical manufacturers remained optimistic due to expectations of persistent feedstock cost advantages over their international counterparts.

Retail Sales

Retail sales expanded at a markedly faster clip than in the prior period. One contact noted that the tax-free weekend stimulated sales. Sales of building materials and garden equipment rose. Auto sales rebounded following weakness in the prior reporting period; however, there were a few reports of softening demand in Houston and Central Texas. Contacts said margins have improved due to increased purchases of larger vehicles. Outlooks among retailers were mixed.

Nonfinancial Services

Demand for nonfinancial services expanded moderately over the past six weeks. Demand for staffing services increased at a moderate pace. Activity in Dallas-Fort Worth increased, while one contact noted an unexpected decline in demand from oil and gas firms in Houston. Professional and technical services firms saw revenue gains during the reporting period, although firms tied to the energy sector cited continued sluggish demand. Accommodation and food services contacts noted slight increases in revenues, while revenue at healthcare firms fell during the reporting period. Airlines said passenger demand was stable over the past six weeks. Domestic travel remained solid, and activity along South American routes improved.

Transportation and warehousing firms noted higher revenues and an increase in cargo volumes since the last report. Rail cargo rose due to persistent strong gains in shipments of fracking sand, although shipments of petroleum products and motor vehicles declined further. Parcel shipments were flat over the reporting period but up from year-ago levels. Year-over-year growth in demand was driven by increases in shipments of nondurable goods, particularly food, apparel, petroleum and coal products, and plastics and rubber products. Outlooks among nonfinancial services firms were cautiously optimistic, with some contacts expressing concern about the impact of the current political environment on the broader economy.

Construction and Real Estate

Home sales were flat to up slightly over the reporting period. Contacts noted ongoing strength in sales of moderately-priced new homes; sales at the higher-price points softened, however. Buyers remained price-sensitive and were shopping more for deals. One contact said that some master-planned communities are adjusting lot sizes downward in future phases, to cater to the solid demand for moderately-priced product.

Apartment leasing remained active in Austin, but rent growth has moderated and incentives were being offered at the high end in submarkets, where competition was intense among new properties in the leasing phase. Activity in Dallas-Fort Worth remained strong, although contacts expect growth to moderate. Apartment demand firmed up in Houston following earlier weakness, and outlooks were positive, with contacts expecting continued, gradual improvement.

Office leasing activity stayed sluggish in Houston and vacancy rates were elevated, putting downward pressure on rents. Fundamentals in Houston's industrial market were healthy given near-record-low vacancy rates. One contact noted that investor interest has picked up in Houston. Office and industrial leasing activity continued to be solid in Dallas-Fort Worth.

Financial Services

Loan demand increased at a somewhat faster pace than the previous reporting period. Growth in commercial and industrial loan volumes ticked up. Commercial and residential real estate loan balances grew at a slower pace than in the previous reporting cycle, while consumer lending declined. Both core deposit volumes and the interest paid on them expanded slightly. Sentiments about future business activity and loan demand remained largely positive.


Demand for oilfield services held steady during the reporting period. Drilling activity expanded further in the Permian Basin, but has tapered off, on net, in the Eleventh District. Most contacts expect the rig count to remain flat or fall slightly through yearend, and some firms noted reducing capital expenditures for the remainder of the year. Outlooks were less optimistic compared with the previous report, as firms expect lower oil prices in the first half of 2018 and many firms have lowered their capital expenditure projections for next year.


Above-average moisture levels and cooler-than-normal weather boosted crop conditions. Sorghum and corn crop yields were better than average. However, grain prices fell below typical breakeven prices during the reporting period, and contacts noted it will take well-above-average yields to offset the low prices. Cattle prices also trended lower, prompting some financial concerns for ranchers after several months of profitability. Agricultural producers were concerned about the renegotiation of NAFTA, as many rely on export markets to sell their products.

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