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Eleventh District Beige Book

May 30, 2018

Summary of Economic Activity

The Eleventh District economy expanded at a solid pace over the past six weeks. Growth in manufacturing increased. Expansion in the energy and service sectors continued at about the same pace, while retail spending was mixed. Home sales continued to rise but apartment markets softened slightly. Hiring was solid across most sectors, and widespread labor shortages continued. Wage and price pressures remained elevated, and several contacts noted a sharp rise in the cost of steel and aluminum. Outlooks remained fairly optimistic, but tariffs and trade-related concerns were creating uncertainty.

Employment and Wages

Employment growth was solid and widespread across sectors. Labor market tightness continued across a wide range of industries and skill levels, with some contacts saying difficulty finding workers was constraining growth to some extent. One staffing services contact noted that some firms were rehiring former retired employees on a part-time basis to meet their staffing needs. In Houston, shortages of painters, tile setters, carpet layers (workers at the backend of the home construction cycle) were noted, a departure from earlier in the year when mostly sheet rock/drywall installers were in short supply. Up-stream energy firms said all skill levels were in short supply, but shortages were most acute for skilled workers.

Wage pressure remained elevated and picked up particularly among manufacturing firms. A large share of respondents noted increasing wages to recruit and retain employees. One contact reported offering large bonuses for trades, such as machinists and welders, who were willing to commit to stay for three years. A health care firm cited high vacancy rates for registered nurse positions.


Price pressures remained elevated. Raw material prices and other input costs continued to climb, but several firms noted they had limited ability to pass on higher costs to customers. Input cost pressures increased among energy, manufacturing, and construction firms, in part due to the new tariffs on lumber, steel and aluminum. Upstream energy firms expressed concern about the new tariffs adversely affecting their operations and costs in the near term. One energy contact reported a sharp rise in rates of drilling rigs. Some auto dealers cited a higher-than-average increase in used-vehicle prices, and transportation service firms noted rising fuel costs. Gasoline and diesel prices rose, driven largely by higher crude oil prices, while the average price for natural gas dipped during the reporting period.


Growth in the manufacturing sector strengthened after having slowed in the prior reporting period. Output growth rose, led by increases in primary metals, transportation equipment, machinery, and high tech manufacturing. Growth in food and nonmetallic mineral (stone, clay, cement and glass) production picked up. Demand for fabricated metals manufacturing increased, with one contact noting strength in oil and gas related activity. Chemical production expanded during the reporting period, and refinery utilization rates were up in April but dipped slightly in early May. Outlooks remained optimistic, although several contacts noted that the new tariffs were creating uncertainty in expectations. Refiners and petrochemical producers expressed negative views about the potential impact of tariffs and quotas on exports as well as new construction projects.

Retail Sales

Retail sales, including companywide internet sales, dipped in April but appear to have picked up in early May. Seasonal retailers attributed the decline in April sales to colder-than-normal weather. Reports on auto sales were mixed, with sales weakening slightly in San Antonio but increasing in Dallas and Houston. Sales growth among durable wholesalers was solid. Outlooks among retailers were positive on net.

Nonfinancial Services

Broad-based expansion continued in the nonfinancial services sector. Transportation services was a particular bright spot. Rail traffic was near record levels, with the increase in shipments being broad based across business lines. Courier and sea cargo volumes expanded as well, with growth in the latter being boosted by marked increases in steel shipments as shippers rushed to bring them in before the new tariffs were implemented. Reports on airline passenger demand were mixed, but outlooks remained optimistic. Leisure and hospitality contacts said spring break activity was mixed, but Easter traffic was strong along the coastal area near Houston. Revenue at professional and technical service firms rose, and staffing services firms continued to note high levels of demand, driven by widespread increases in activity across geographies and sectors. Outlooks improved, although uncertainty surrounding trade policies and rising interest rates negatively impacted some firms' expectations.

Construction and Real Estate

Home sales rose during the reporting period, with continued strength in sales at the low- to mid-price points. Year-to-date sales were generally on or ahead of plan for builders. Buyers remained price sensitive, and builders have been focused on housing affordability. One contact noted that in Houston, some builders were downsizing homes on large lots to bring the price point down. Contacts said several new deals are not being penciled in partly due to high and/or rising land, development, and other costs. Outlooks were positive, although margin compression, climbing material costs, and rising interest rates were a concern.

Ample supply coupled with modest demand has slowed apartment rent growth in most major metros. In Houston, however, net absorption has been solid and overall rent growth has been strong as well. Some contacts noted a pickup in investment activity.

Office leasing activity and/or net absorption slowed in Dallas-Fort Worth and remained sluggish in Houston. Conditions in industrial markets were characterized as solid, while reports on retail space activity were mixed.

Financial Services

Loan volumes and demand expanded at a faster pace compared with the previous reporting period. Strong growth was seen in commercial and industrial, and commercial and residential real estate lending. Consumer loan volumes increased modestly. Credit standards remained flat or ticked down, while loan pricing continued to increase. The volume of deposits increased at a slower pace than in the last report, and a few contacts noted increased competition for deposits. Banking contacts remained optimistic as they expect both loan demand and general business activity to improve.


Energy activity continued to expand moderately. Drilling and completion activity increased in the Eleventh District, particularly in the Permian Basin. Large firms are driving growth, and it remained difficult for small exploration and production companies to expand operations despite high oil prices. Outlooks remained positive, supported by favorable oil prices, although contacts said pipeline capacity, labor, and supply chain constraints may limit further increases in production growth.


Drought conditions continued to plague much of West Texas and Southern New Mexico, particularly in the Texas panhandle. Crop conditions for winter wheat were much poorer compared with last year due to the lack of soil moisture. Row crop planting continued and crops were in mostly fair to good condition, but there was concern among producers about the dry weather potentially causing below-average yields. Given the current level of prices, grain farmers need at least average yields to be profitable this year. Cotton farmers were a bit more optimistic due to higher prices over the last six weeks and because cotton yields generally hold up better than other crops during drought. Cattle prices rose, largely due to seasonal factors but also buoyed by very strong domestic and international demand.

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