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Eleventh District Beige Book

January 16, 2019

Summary of Economic Activity

Expansion in the Eleventh District economy slowed to a more modest pace over the reporting period. While the level of activity generally remained healthy, growth decelerated broadly across the manufacturing, services, retail, and energy sectors. Loan volumes declined slightly and new home sales fell modestly. Conversely, ample soil moisture has boosted crop conditions and improved prospects for the agricultural sector this year. Employment expanded, albeit at a slightly slower pace, despite continued widespread labor shortages. Wage growth remained elevated, while price growth abated to more normal levels. Outlooks were notably less optimistic than in the previous report due to declining oil prices, political and trade uncertainty, higher interest rates, and stock market volatility.

Employment and Wages

Employment growth continued but slowed slightly over the reporting period, and labor market tightness persisted. Contacts continued to note a lack of available workers, both high skilled and low skilled, with specific mentions of shortages in construction, energy, hospitality, health care, banking, and transportation (truck drivers specifically).

Wage growth had been on the rise for most of 2018 but eased toward yearend in several sectors, while still remaining elevated. Numerous contacts said workers were expecting higher pay, and many raised wages by 3-10 percent in response. One contact implemented a higher minimum wage to reduce employee turnover and attract higher-quality applicants. Firms responding to special questions on wages reported 4.5 percent annual wage growth in 2018, on average, with expectations of growth slowing to 4.0 percent in 2019.


Input price growth abated to more moderate levels across most industries in December. Oil producers reported relatively stable costs due to rising supplies of local sand and ongoing improvements in operational efficiency. Over the reporting period, selling price growth moderated: falling to a more moderate pace in goods-producing industries but remaining elevated in the service sector. Overall, most district firms were not able to raise selling prices fully in step with cost increases. Only about a quarter of the more than 300 Texas business executives surveyed said they were able to pass on to customers most or all of their cost increases. A durable goods manufacturer noted difficulty competing with foreign companies not facing the same raw materials tariffs. Margins at oilfield services firms continued to be under pressure from high costs and increasing competition.


Over the reporting period, output growth continued to abate slightly for both durables and nondurables manufacturing. The Texas manufacturing sector ended 2018 with modest growth, a downshift from the more robust expansion seen earlier in the year. Lower fuel prices boosted demand among petroleum refineries.

Outlooks among manufacturers turned slightly negative in December. Contacts pointed to declining oil prices, labor constraints, political uncertainty, higher interest rates, and reduced activity in the housing and energy sectors as factors restraining growth or damping outlooks.

Retail Sales

Retail sales expanded at a slower pace compared with the previous reporting period. Online sales growth picked up, while some contacts reported weakness in in-store sales. Auto sales weakened slightly, with a couple of contacts citing the negative effects of increasing interest rates, and one noting increased competition and price shopping by customers. Retailers along the border noted increased competition in Mexico's retail market and thus fewer Mexican shoppers. Overall, outlooks in the retail sector were notably less optimistic at yearend 2018 than in the prior Beige Book.

Nonfinancial Services

Growth in the nonfinancial services sector slowed notably over the reporting period. The slowing was led by staffing services, where demand decelerated from very high levels and revenue declined for some firms. A few staffing contacts reported increased uncertainty and customers delaying hiring plans. Slight revenue reductions were also reported in the health care sector, with multiple contacts mentioning an erosion of pricing power. Reports from transportation services firms were mixed. Leisure and hospitality was a bright spot, with solid revenue growth through yearend, and growth among professional, scientific, and technical services firms remained fairly stable.

Firms' outlooks deteriorated, with contacts citing softening oil prices, general market volatility, and political and trade uncertainty.

Construction and Real Estate

New home sales fell modestly since the last Beige Book, while reports on existing-home sales were mixed. Ongoing construction delays, in part due to fall rains, were noted in Houston, and one contact said that builders and developers were adjusting to the new flood plain regulations in the city. Outlooks were cautious, and builders were selective in signing new deals.

Apartment demand was seasonally slow over the reporting period. Rent growth strengthened in Austin, remained modest in Dallas and San Antonio, and slowed in Houston. Contacts continued to note some supply-driven softness in rent growth at the high-end. Industrial and retail activity generally remained healthy. Office demand was mixed, with leasing most active for new Class A office space.

Financial Services

Loan volumes declined slightly over the reporting period, led by a reduction in residential real estate loan volumes. Loan pricing continued to increase but at a slightly faster pace. Deposit volumes rose notably. Outlooks were less optimistic than they were six weeks ago, as more than a third of contacts believe general business activity will be worse six months from now. Bankers cite oil prices, trade relations, increased interest rates, and uncertainties in U.S. and global markets among factors creating a more difficult lending environment.


Energy activity remained strong but growth slowed notably, and outlooks worsened. Drilling and completion activity were flat over the reporting period, while the inventory of uncompleted wells continued to grow due to lower oil prices and ongoing pipeline and transportation bottlenecks in the Permian Basin. Lower oil prices were a worry, and about half of energy firms lowered capital spending plans for 2019 in response, according to the Dallas Fed Energy Survey. However, most firms still believe their capital spending will be higher in 2019 compared with 2018. On average, survey respondents expect the WTI oil price to be around $60 per barrel at yearend 2019--above the reported average breakeven price to profitably drill new wells.


Ample soil moisture has boosted agricultural producers' outlook for 2019, although prices for several crops remain low. The new farm bill offers farmers greater flexibility in choosing coverage options and reintroduced cotton as a covered commodity after it was removed in the 2014 farm bill. This cotton safety net is meaningful for many cotton growers as they secure financing for the upcoming crop season. Conditions in the livestock sector generally remained favorable, but milk prices have fallen over the reporting period and may cause strain on dairies.

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