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Eleventh District Beige Book

July 18, 2018

Summary of Economic Activity

Expansion in the Eleventh District economy continued at a solid pace. Manufacturing output increased, and loan demand and retail spending rose. Broad-based expansion in the energy and service sectors continued. Home sales rose modestly, while apartment markets softened slightly. The ongoing drought negatively affected crop and grazing conditions. Hiring remained strong, and widespread labor shortages continued putting pressure on wages. Price pressures stayed elevated largely due to increases in input costs, particularly steel and aluminum. Although outlooks remained fairly optimistic, tariffs and trade-related concerns were creating uncertainty.

Employment and Wages

Job growth was solid and widespread across sectors, with most firms bullish in their expectations for long-run employment. Labor market tightness continued across a wide array of industries and skill sets, with several contacts saying difficulty finding workers was constraining growth to some extent. Oilfield services firms noted shortages of mechanics and truck drivers, and one contact said hiring and retaining workers in the bottom 20 percent of their payroll was a challenge. A staffing firm said they had partnered with a manufacturing company, where workers could attend a paid, six-week welding course and receive fulltime employment following successful completion. Nearly half of the firms responding to a set of special questions indicated that new technologies were not impacting employment levels, although 25 percent said it was changing the types of workers needed.

Wage pressures remained elevated, and firms expected to give employees a larger increase in wages this year compared with 2017. Several firms were employing multiple strategies to recruit and retain employees, such as intensifying recruiting, raising wages, offering on-the-job training and/or increasing variable pay/bonus.


Price pressures remained elevated. Input costs increased among energy, manufacturing, and construction firms, in part due to rising freight costs and the new tariffs on steel, aluminum, and lumber. Auto dealers reported higher new vehicle prices and financing costs, and transportation service firms noted climbing fuel prices. Many other retailers and service firms also cited rising input and other costs such as health care. A number of contacts said they plan on increasing selling prices to offset higher costs. West Texas Intermediate oil prices rose to their highest levels since 2014 driven by falling inventories, rising geopolitical risks in the Middle East, U.S. policy on Iran, and other oil supply concerns.


Expansion in the manufacturing sector continued, although the overall pace of growth eased in June from the highs seen in May. Output growth was led by transportation equipment and food manufacturing. Growth in machinery production receded in June from May's elevated rates, while demand for fabricated and primary metals increased. Chemical production expanded further, and the Gulf Coast refinery utilization rate climbed up to 97.6 percent toward the end of June. Refiners and chemical producers reported optimistic outlooks, buoyed by relatively low domestic feed costs and expectations of healthy global demand for their products. Overall, outlooks among manufacturers remained positive, although contacts said that the new tariffs had heightened uncertainty in expectations for activity and prices.

Retail Sales

Retail sales rose sharply in May but growth slowed in June, with many retailers noting either flat or softening activity. Internet sales grew moderately over the reporting period. Auto sales were strong, but contacts reported increased pressure on margins in part due to rising financing costs among other expenses. Sales increased among durable goods wholesalers, while falling for nondurables. While outlooks overall remained positive, rising interest rates and the newly imposed tariffs were negatively impacting some retailers' expectations.

Nonfinancial Services

Growth in nonfinancial services activity was broad based across industries. Strong revenue growth among transportation services and finance and insurance firms boosted service sector activity. Rail traffic remained close to record levels, with shipments increasing broadly across business lines. Air cargo volumes expanded as well, in part due to a pickup in international shipments. Airline passenger demand was stable, and leisure and hospitality contacts saw a pickup in activity. Revenue growth in the professional and business services sector was solid, with staffing services firms noting persistently high demand, driven by widespread increases in activity across geographies and sectors. Expectations regarding future business conditions remained optimistic, although higher fuel prices, rising costs, labor shortages, and uncertainty surrounding trade policies were sources of concern among contacts.

Construction and Real Estate

Home sales edged up over the reporting period, with year-to-date sales on or ahead of plan for most builders. Buyers remained price sensitive, putting pressure on builders' margins. Contacts expressed trepidation about the impact of rising interest rates and uncertainty surrounding trade and immigration policies on future activity and/or costs. Nevertheless, outlooks remained positive.

A large number of new apartments are putting pressure on rents, particularly in areas where there was a lot of availability. Rent growth in Dallas and Austin was modest and below its long run average, though occupancy was generally holding up well. A slowing pace of deliveries combined with a pickup in economic growth has boosted occupancy and rent growth in Houston. Investment activity remained solid despite the recent softening in overall performance.

Net absorption in DFW's office market improved in the second quarter but remained modest compared with the highs seen last year. Office leasing activity was steady in San Antonio, but remained sluggish in Houston. Conditions in industrial markets were characterized as solid, and reports on demand for retail space mostly indicated flat but healthy levels of activity.

Financial Services

Loan volumes and demand expanded over the reporting period. Growth remained broad based, with continued strength in commercial and residential real estate lending. Consumer loan volumes increased slightly, and commercial and industrial loan volumes grew at a slower pace than during the last reporting period. Loan pricing rose further, and credit standards remained unchanged or tightened moderately. The volume of deposits ticked up, and some contacts noted raising rates to compete for deposits. Outlooks remained optimistic, although regulatory compliance, difficulty expanding the existing deposit base, and potential inversion of the yield curve were concerns cited by banking contacts.


Energy sector activity expanded strongly. Demand for oilfield services rose further, and firms noted increased equipment utilization. Drilling activity ticked up in the District even as the U.S. rig count dipped. Expectations regarding future business conditions remained positive, supported by a favorable outlook for oil prices, but contacts expressed concern about steel tariffs, pipeline capacity constraints, and worker shortages.


Drought conditions became slightly less severe but more widespread over the reporting period. Texas farmers were concerned because the drought will likely suppress crop yields, and crop prices are lower due to trade restrictions and strong U.S. production prospects. Grazing conditions remained well below average, and cattle prices experienced a slightly higher-than-average seasonal decline over the last six weeks, despite strong export and domestic demand for beef.


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