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Eleventh District Beige Book

April 17, 2019

Summary of Economic Activity

Moderate expansion continued in the Eleventh District economy. Manufacturing output increased. Retail sales were flat, and growth in the nonfinancial services sector softened. Loan volumes expanded led by growth in commercial real estate lending, and home sales rose, further boosting optimism in outlooks. Soil moisture was mostly adequate, though rains delayed crop planting in some areas. Activity in the energy sector expanded. Employment rose moderately, despite a tight labor market. Wage growth remained elevated, while price growth was mixed. Outlooks stayed positive or improved in most sectors with the exception of nonfinancial services.

Employment and Wages

Employment expanded moderately during the reporting period. A lack of qualified job candidates continued to challenge businesses across sectors and skill levels, but shortages appeared to be most severe for mid-skilled positions such as construction personnel and truck drivers. Airlines said they continued to hire pilots and flight attendants, and staffing firms reported ongoing hiring. Multiple firms in the energy sector said they expected to hold head counts steady this year.

Wage pressures generally remained elevated, and one energy sector contact noted that they were having to pay hot oil truck drivers $130,000 annually to retain them.


Input price pressures accelerated slightly in the service sector but were stable in manufacturing. Transportation service firms mentioned higher fuel costs and fees, and retailers noted rising cost pressures. One retailer said that tariffs and labor shortages throughout their supply chain were putting upward pressure on costs. Homebuilders generally cited stable but elevated material costs. Selling price growth was modest to moderate, and passing on cost increases to customers remained difficult. Energy firms reported that breakeven prices for new wells were roughly flat to down year over year in part due to lower costs and/or higher efficiency. A staffing firm, who had let go several clients because they were unable to negotiate higher bill rates with them, said that one of these clients had returned after accepting higher rates.


Expansion in the manufacturing sector continued at a moderate pace. Output growth picked up for nondurables, and remained positive for durables, particularly for construction-related products, transportation equipment, and computer and electronic product manufacturing. Outlooks stayed positive, and a few firms said the recent progress made on U.S. trade deals and the pause in short-term interest rate hikes have helped stabilize the outlook.

Gulf Coast refinery operating rates remained healthy in February. Margins firmed up during the reporting period; however, higher prices for heavy crudes have eroded the outlook for margins over the medium term.

Retail Sales

Retail sales were flat in March, with multiple contacts noting slower demand. Online-sales growth remained weak. Reports on auto sales were mixed; solid in Central and South Texas but soft in Houston. Outlooks worsened, and a few contacts cited supply chain uncertainty or weakening business confidence as factors affecting expectations.

Nonfinancial Services

Growth in nonfinancial services activity slowed slightly, but remained positive and widespread across industries. Revenue growth was solid among professional and business services and accommodation and food services. Staffing services firms cited double-digit year-over-year growth in demand, with increases continuing to be broad-based geographically and across industries. Overall, revenues rose in the transportation services industry, but reports were mixed. Rail and air shipping volumes were down year over year, but sea cargo rose significantly due to strength in steel and container shipments over the same period. Airlines noted steady passenger demand for domestic travel, but demand for international travel was weak. Service-sector outlooks were markedly weaker than the last report, with political uncertainty, trade policy issues, and health of the global economy cited as potential headwinds.

Construction and Real Estate

Activity in the housing market improved further, with multiple contacts citing the recent drop in mortgage rates as a factor boosting growth. Contacts reported a noticeable pickup in foot traffic and home sales starting in mid-February through March, but sales were generally flat relative to year-ago levels. Activity in Austin, Fort Worth, and Houston was stronger than in Dallas and San Antonio. Outlooks stayed optimistic, and builders were generally on plan for 2019.

Apartment demand was seasonally slow during the first quarter. Rent growth accelerated in Austin, Dallas, and San Antonio, remained solid in Fort Worth, but rents were flat in Houston. Multifamily construction remained active, and investment activity was stable in the first quarter.

Industrial leasing was solid in Austin and Dallas-Fort Worth but slowed in Houston in the first quarter. Solid job growth and limited new supply is supporting absorption in the Houston office market, although overall conditions remain soft. Office leasing slowed in Dallas-Fort Worth in the first quarter.

Financial Services

Loan volumes increased over the reporting period, led by growth in commercial real estate lending, while residential real estate volumes also rose. However, consumer and commercial and industrial loan volumes dipped. Loan pricing remained competitive, and net interest margins declined. Deposit volumes rose, while credit standards eased moderately. Outlooks remained optimistic, but the cost of regulatory compliance and an increasingly competitive lending environment were cited as concerns by banking contacts.


Energy activity grew modestly, and outlooks improved. Production rose at a slow pace, but drilling activity continued to slide as firms reined in spending, including orders for new equipment. Oilfield services firms and equipment suppliers noted surplus capacity for fracking services and slim margins. Availability of additional pipeline capacity out of the Permian Basin has propped up crude oil priced in West Texas relative to the Gulf Coast. Firms responding to the first-quarter Dallas Fed Energy Survey, on average, 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. Uncertainty in price outlooks declined partly because contacts were more confident that OPEC would sustain production cuts in the second half of the year.


Soil moisture was mostly adequate, and there was a surplus in some areas, particularly the eastern part of the state. Some row crop plantings were delayed as a result of wet fields, but overall production prospects remained quite bullish. The wheat crop was in far better condition than last year thanks to favorable weather, but prices remained low leading some producers to consider harvesting the wheat for hay or silage, or grazing cattle on it. A large U.S. cotton crop was expected, which could depress prices, and there is still much uncertainty regarding tariffs.

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