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Eleventh District Beige Book

October 24, 2018

Summary of Economic Activity

Solid expansion continued in the Eleventh District economy. Manufacturing output increased robustly, although demand growth slowed from last period. Healthy growth continued in retail and nonfinancial services. Loan demand and volumes increased further, as did loan pricing. Home sales were flat to up over the past six weeks. Drilling activity was flat as limited pipeline and transportation capacity inhibited growth. Employment increased, and widespread labor shortages continued to pressure wages and even restrain business growth in some sectors. Price pressures stayed elevated, partly due to tariffs driving up input costs. Outlooks remained optimistic despite increased uncertainty stemming from trade disputes, rising interest rates, and labor constraints.

Employment and Wages

Widespread job growth continued across sectors. However, labor markets remained very tight, with most contacts reporting difficulty hiring and several saying the lack of qualified candidates was impeding growth. While labor shortages spanned most sectors and all skill levels, contacts reported the greatest prevalence in mid-skilled positions such as blue collar workers in manufacturing, construction, and energy, as well as truck drivers. Shortages were also cited for low-skill workers in the food service industry and high-skill workers in utilities, telecommunications, and business and financial services. A few contacts noted labor poaching was a real issue, especially energy sector firms reaching out to workers in manufacturing and retail. A staffing services contact voiced concern over an extreme shortage of qualified bilingual candidates, particularly for areas like customer service, call centers, accounting, and business development.

Upward wage pressure was generally pervasive and strong, according to contacts. Some businesses were implementing non-wage strategies to recruit and retain workers, such as giving sizeable signing bonuses, offering part-time and/or flexible work schedules, and keeping employees on the payroll during periods of slower business. Also, a staffing firm reported that employers were willing to accept candidates that met only 60 percent of the qualifications rather than the usual 80 percent.


Price pressures remained elevated in part due to tariffs, particularly in manufacturing and retail. Among manufacturers, roughly 60 percent of contacts said the tariffs announced and/or implemented this year have resulted in increased input costs. The share was even higher among retailers, at 70 percent. Several contacts noted lower profit margins resulting from not being able to raise selling prices enough to offset the full cost hikes. Aside from tariffs, some services firms said they have raised their prices to offset wage increases. Construction contacts continued to report high and/or rising material costs. Oil and gas support services firms said input costs rose at a faster pace in the third quarter than in the second and at a faster pace than they were able to raise the prices they charge.


Robust output growth continued in the manufacturing sector, although there were some signs that the expansion was moderating somewhat. Demand growth slowed in September, particularly for nondurables manufacturing such as chemicals. Labor constraints were reported as a damping factor, as were tariffs. In a September survey conducted by the Dallas Fed, nearly half of the 110 Texas manufacturing executives responding said the net impact on their firm of the tariffs announced and/or implemented by the U.S. and other countries is negative, while 9 percent said the impact is positive. The most common tariff effects were increased uncertainty, rising costs, longer supplier delivery times, and reduced production. Even still, manufacturers reported positive business conditions overall, and outlooks remained optimistic.

Retail Sales

Retail sales at Texas stores continued to expand solidly during the reporting period, while companywide and online sales growth abated somewhat. Some contacts, particularly auto dealers, noted that tariffs are prompting uncertainty. A contact noted that an online retail competitor has driven some retailers to shift their business model to remain competitive, such as offering in-store pickups for online orders and price matching. Retail contacts were notably more optimistic in their outlooks than they have been all year.

Nonfinancial Services

The nonfinancial services sector continued to expand robustly, with revenue growth led by transportation services and administrative and support services. Revenue growth accelerated in professional, scientific, and technical services but remained lackluster in leisure and hospitality. Most staffing firms reported surging demand for their services over the reporting period, noting strength in all markets, both geographically and by industry. There was some concern about potential effects of rising interest rates, and roughly half of the 212 Texas general services firms responding to a recent Dallas Fed survey said tariffs were driving up uncertainty. However, outlooks were largely optimistic--even more so than during the last reporting cycle--and several contacts said they expect strong demand to keep up through yearend and into 2019.

Construction and Real Estate

Home sales were flat to up over the past six weeks, with continued strength noted at lower price points. Home prices were flat, and builders said it remained difficult to pass through notably higher construction costs. Rising interest rates and building costs were among top concerns in the single-family housing market. Apartment demand exceeded expectations in most major metros in Texas during the third quarter, pushing up occupancy and rents slightly.

Financial Services

Loan demand growth remained strong over the reporting period, while growth in actual loan volumes eased slightly. The deceleration was most pronounced for residential real estate and commercial/industrial loan volumes, while consumer loan volumes actually grew at a faster pace over the past six weeks. Loan pricing continued to rise as did banks' cost of funds. Deposit volumes expanded, albeit at a slower pace, with many contacts reporting an increase in competition for deposits. Contacts continued to be optimistic about future economic activity and loan demand, however uncertainty in tariff and trade negotiations and a flattening yield curve were cited as top concerns.


Drilling activity in the Eleventh District was flat over the past six weeks as pipeline capacity constraints continued to put downward pressure on prices received by oil and gas operators in the Permian Basin. The lower prices and transportation constraints have restrained growth in rig counts and pushed down demand for some production-related oilfield services. Overall, outlooks remained positive as additional pipeline capacity is expected to be operational by late 2019 or 2020.


Drought conditions improved remarkably over the reporting period thanks to ample precipitation across much of the district. While increased soil moisture will be a boon to the winter wheat crop, the rain came too late to help the 2018 row crops for which yields are expected to be down notably from last year. In fact, wet fields have to some extent hampered the harvesting efforts underway and could potentially cause quality issues for cotton. On the livestock side, conditions remained favorable with rising cattle prices, lower feed costs, and strong demand for beef.

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