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Eleventh District Beige Book

January 17, 2018

Summary of Economic Activity

The Eleventh District economy expanded at a robust pace over the past six weeks. A broad-based acceleration in growth was seen across the manufacturing, retail, nonfinancial services and energy sectors. Home sales continued to increase over the reporting period, and loan demand grew. Hiring picked up, and wage and price pressures remained elevated. Outlooks improved, although some uncertainty remained, and numerous contacts were optimistic that tax reform would provide a tailwind to business growth.

Employment and Wages

Overall employment growth picked up from six weeks ago, and upward wage pressure persisted at slightly elevated levels. Hiring rose at a markedly faster pace in manufacturing and retail, and at a somewhat faster pace in the service sector, led by health, transportation, and hospitality firms. In the energy sector, hiring slowed among exploration and production firms in the fourth quarter 2017 but ramped up notably among services firms. Labor market tightness continued in most industries and across a wide range of positions, with several contacts saying difficulty finding workers was constraining growth to some extent. Numerous contacts cited rising labor costs, with some noting acceleration over the past couple of months.


Pressure on selling prices remained elevated over the past six weeks, notably so in manufacturing and retail. A pickup to above-average price growth was noted among services firms, particularly in finance and transportation, although airlines continued to report falling ticket prices due to increased competition. Looking ahead, overall price expectations increased, with some manufacturers and retailers specifically noting plans to increase prices in 2018 in response to higher labor and input costs.

Among energy firms, prices received for services continued to rise and were increasing at a much faster clip than a year ago. Natural gas prices stayed in roughly the same range as the prior reporting period, while oil prices rose slightly. Energy executives responding to the Dallas Fed Energy Survey expect oil prices to be about $59 per barrel by year-end 2018, on average, and about $66 per barrel longer term (three to five years).


Expansion in the manufacturing sector accelerated further at yearend 2017. Contacts reported stronger growth in both demand and output, particularly among high tech and transportation equipment manufacturing. Chemical production has also been very robust, and contacts along the border continued to see strong maquiladora activity. Growth generally moderated among firms closely tied to energy or exports, but a sharp rise in growth in the rest of the manufacturing sector more than offset that deceleration. Overall capital spending plans increased noticeably--half of the 104 firms responding to the December Texas Manufacturing Outlook Survey expect increased capital expenditures six months from now, the highest share since 2006. Optimism in firms' outlooks picked up notably, with some manufacturers indicating the tax bill may be a tailwind for manufacturing going forward. However, difficulty hiring remains a headwind, and uncertainty about NAFTA remains.

Retail Sales

Retail sales accelerated slightly over the past six weeks. The auto industry remained very strong, with a notable pickup in auto sales after a lull in the prior reporting period. In general, retail sales growth outpaced sales growth among wholesalers, and contacts noted a continued increase in internet sales. A clothing retailer said sales in the oil patch markets have stabilized versus last year. Along the border, some contacts reported continued weakness in retail. Outlooks among retailers in general remained quite positive.

Nonfinancial Services

Nonfinancial services activity picked up pace over the reporting period, ending 2017 with fairly robust growth. A sharp rise in revenue growth among leisure and hospitality firms was a boon to the service sector, while relatively slow growth among administrative and support services firms was a drag. However, staffing services companies reported broad-based demand growth, particularly in the manufacturing and health sectors. Contacts in smaller tourist areas affected by Hurricane Harvey such as Rockport and Port Aransas reported continued struggles in rebuilding and retaining business. Cargo volumes among transportation services firms generally increased. For rail cargo, petroleum and frac sand shipments were up over the reporting period, as were shipments of building products, with recent increases driven largely by hurricane reconstruction. Courier cargo volumes were up from six weeks ago and year over year. Overall, outlooks were more optimistic, although uncertainty remained--particularly surrounding trade negotiations and government regulations. A number of contacts expect the new tax bill to boost activity in 2018.

Construction and Real Estate

Home sales continued to increase over the past six weeks, with sales remaining strong at low- to mid-price points. Contacts in Houston noted that sales and traffic were returning to a normal pace after Hurricane Harvey, and were flat or slightly ahead of last year. Contacts said new home sales in Dallas-Fort Worth were somewhat better than expected. Homebuilders generally did not report concern about the changes in the mortgage interest and property tax deductions in the new tax bill, but they did note ongoing pushback from buyers on new home pricing.

Leasing activity in the apartment market was little changed since the last report, with rent growth in Fort Worth ahead of other major Texas metros. Office demand stayed solid in Dallas, moderated in Austin, and remained weak in Houston. The industrial market overall was characterized as steady to strong.

Financial Services

Demand for loans increased over the reporting period, and overall loan volumes rose at a faster pace. Residential real estate loans picked up markedly, with more than 40 percent of bankers surveyed noting an increase in volumes over the past six weeks. Commercial real estate loans also increased at an accelerated clip, while commercial and industrial loan growth held steady at a modest pace. Contacts also noted an increase in consumer loan volumes for the first time since February 2017. Bankers reported a notable increase in loan pricing and a tightening in credit standards and terms. Contacts expressed higher levels of optimism about overall business activity and total loan demand going forward, with nearly two-thirds of bankers expecting stronger loan demand six months from now.


Energy activity was up from six weeks ago, as drilling in the Permian Basin and Eagle Ford increased and well completions continued to grow. Demand for oilfield services remained healthy in the Permian Basin, and activity in the Eagle Ford firmed. Some energy contacts noted an increase in lending and investment deals. Outlooks for 2018 improved, but remain conservative, with contacts expecting drilling activity, production and employment to grow this year.


The 2017 row crop harvest wrapped up, with generally favorable crop conditions after a dry spell in November. Texas cotton production was up notably from 2016 due to more acres planted and higher yields. Cotton prices rose over the past six weeks, and contacts expect the relatively strong prices to prompt a shift of more acres from grain to cotton this year. Agricultural producers remained concerned about revenue, as grain prices continued trending at unprofitable levels. Loan demand has been decreasing for the last two years while loan renewals and extensions have increased, according to the Dallas Fed Agricultural Survey. Uncertainty about NAFTA is also a headwind for the agriculture sector, as many producers rely on export markets to move their production.

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