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Eleventh District Beige Book

March 7, 2018

Summary of Economic Activity

The Eleventh District economy expanded at a moderate pace over the past six weeks. The manufacturing sector continued to expand robustly, energy activity increased, and home sales continued to rise. Growth slowed slightly in financial and nonfinancial services, while retail sales declined modestly. Hiring was strong across most sectors. Widespread reports of labor market tightness and difficulty finding qualified workers continued, and more firms responded by raising wages than in prior reporting periods. Price pressures remained elevated, and in some cases intensified. Outlooks remained broadly optimistic, although some uncertainty persisted.

Employment and Wages

Overall employment growth remained solid, and upward wage pressure increased somewhat. Hiring continued at a robust pace in manufacturing, services, and retail. Hiring in the energy sector has expanded so far in 2018, although numerous contacts noted a severe shortage of workers in West Texas, particularly for skilled positions. A lack of qualified candidates continued to challenge businesses in other sectors as well, with several reports that this lack of workers was inhibiting growth. Several contacts in construction-related industries noted further tightening in labor markets due to hurricane-related rebuilding. More firms said they raised wages to retain and/or attract workers than in the prior reporting period, particularly in the manufacturing, retail, and hospitality sectors. Energy contacts also noted an increase in wage pressure, for upstream jobs as well as for downstream construction labor. Also, a staffing firm noted that pay increases were fairly widespread among workers earning about $9 per hour.

Looking ahead, firms were quite bullish on their hiring plans. More than half of the 362 firms responding to supplemental questions in the February Texas Business Outlook Surveys said they expect to increase their employment over the next six to twelve months, up roughly five percentage points from a year ago.


Price pressures remained elevated over the past six weeks, and a slightly faster pickup was seen in input prices. Transportation firms noted an increase in fuel costs, manufacturers noted increases in steel and petroleum product prices, and homebuilders said the price of some raw materials like lumber and concrete had risen. Selling prices increased at about the same pace as in the prior reporting period, although there was acceleration in manufacturing finished goods prices.

The average natural gas price over the reporting period was largely unchanged from the prior period despite some brief cold-weather-related increases, while the average WTI oil price was the highest it's been since December 2014. The price of energy services continued to rise as drilling and well completion activity grew.


Robust expansion in the manufacturing sector continued through February. Demand and output growth persisted, with a pickup in nondurables. Contacts noted strength in chemicals manufacturing in particular. One machinery manufacturer said business has been trending up over the past few months, with demand from the oil and gas sector playing a bigger role, and another said growth this year has been the best in the past five years. Outlooks overall remained highly positive, with contacts citing tax reform and a lower dollar as tailwinds, and rising interest rates and inflation as potential headwinds.

Retail Sales

Retail sales fell slightly over the past six weeks, led by a decline in auto sales. Several contacts attributed some of the weakness to poor weather. One auto dealer noted that after several years of increases in sales volumes, a slight decrease is to be expected. For retailers more broadly, contacts noted a continued increase in internet sales. One wholesaler noted that their decrease in brick and mortar sales was offset by an increase in internet sales. Outlooks among retailers in general remained positive but were less optimistic than the prior reporting period.

Nonfinancial Services

The nonfinancial services sector continued to grow but at a slightly slower pace. The professional and business services industry was a bright spot, with revenue growth accelerating so far in 2018. Demand for staffing services generally increased and was broad-based, especially in Dallas and Houston. Transportation services also remained strong--rail cargo volumes continued to increase, and airline demand held steady at robust levels. Weakness was largely concentrated in leisure and hospitality, although several contacts said the softness was largely due to colder-than-usual weather. Contacts in tourism areas along the Gulf Coast said business continues to struggle after the devastation of Hurricane Harvey. Overall, outlooks remained optimistic, although there was continued caution among transportation services firms and others concerned about the outcome of international trade negotiations.

Construction and Real Estate

Home sales rose over the reporting period, with contacts noting a good start to 2018. Home prices remained elevated, although contacts said it continued to be difficult to pass through further increases. Outlooks were positive, but there was concern among builders about margin compression and the potential impact of rising mortgage rates.

The Dallas-Fort Worth office market remained in good shape. Contacts noted a decline in sublease space in Houston, but overall office market conditions continued to be weak. Industrial availability generally remained tight across major metropolitan areas.

Financial Services

Loan volumes and demand increased over the past six weeks, but at a slower pace compared to the previous reporting period. Volume growth was strongest for residential real estate loans and weakest for consumer loans. Interest rates charged on loans picked up, with more than 40 percent of bankers surveyed noting an increase over the past six weeks. Two-thirds of bankers reported an increase in cost of funds, up from the prior reporting period when half noted an increase. The volume of core deposits continued to rise, albeit at a significantly slower pace than in the past several months. Credit standards and terms continued to tighten. Banking contacts remained optimistic, generally expecting stronger loan demand and increased business activity six months from now.


Energy activity was up from six weeks ago, as the rig count increased. New well completions also picked up, particularly in the Permian Basin. An oilfield services firm expects a further pickup in activity in the second quarter. Company outlooks remain relatively optimistic for 2018, with current oil prices at levels favorable for increasing production and employment.


Agricultural producers were concerned about worsening drought conditions. As of February 20, 70 percent of Texas was experiencing at least moderate drought, with some extreme drought in the High Plains and Panhandle. However, rainstorms late in the reporting period likely alleviated the dry conditions in parts of the state. The cattle sector remained solid with strong demand for beef, both domestic and international, and rising cattle prices. However, the dairy industry continued to struggle with declining prices. Cotton acreage will likely be up in Texas this year, and there was excitement among producers about cotton provisions being added back into the Farm Bill legislation. Financial concerns continued among grain farmers as they prepared for planting, with crop prices remaining low and some inflation seen in fuel and fertilizer costs. NAFTA renegotiations also remained a source of concern and uncertainty.

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