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Eleventh District Beige Book

October 16, 2019

Summary of Economic Activity

Moderate expansion continued in the Eleventh District economy. Growth continued in manufacturing and nonfinancial services and resumed in retail after flat sales in the previous period. Home sales increased and loan demand accelerated. Energy activity declined and agricultural conditions deteriorated due to hot and dry weather. Employment growth was solid while wage pressures continued. Selling prices were largely flat, as firms' ability to pass through cost increases remained limited. Outlooks improved in manufacturing and nonfinancial services, were unchanged in retail and financial services, and softened in energy. Uncertainty generally remained elevated, driven by trade tensions, the political climate, recession concerns, and weaker global growth.

Employment and Wages

Employment continued to expand at a solid pace. Hiring picked up in manufacturing, while headcounts fell in the oil and gas sector. A staffing services firm noted that direct hires have been increasing while demand for contract workers has abated. A majority of firms trying to hire reported they were having difficulty finding qualified workers. Labor shortages continued to span most industries, skill levels, and regions. Contacts in retail, leisure and hospitality, and professional and business services cited difficultly hiring and retaining workers as a leading issue. A manufacturing contact expressed plans to invest more in capital equipment to reduce their dependence on labor in expanding their business.

Wage pressures continued but retreated slightly to more average levels.


Input prices continued to rise at a moderate pace, with an uptick seen in prices paid for raw materials among manufacturers. Several contacts pointed to tariffs and trade policy as a driver of higher costs. Firms' ability to pass higher costs on to customers was somewhat mixed, but reports of difficulty were more common than reports of ease. Selling prices were largely flat in the manufacturing and services sectors while prices received for oil and gas support services declined. Several contacts reported squeezed profit margins.


Expansion in the manufacturing sector continued at a moderate pace. Growth in September was slightly slower than what was seen in August, but still stronger than the first half of the year. The modest deceleration in September output growth was fairly broad based, led by machinery and fabricated metals manufacturing. Refiners and chemical producers indicated softening global demand growth was putting downward pressure on production this year. Some recent strength was seen in transportation equipment manufacturing.

Outlooks among manufacturers remained positive, although several contacts pointed to increased uncertainty stemming from tariffs and trade tensions, the political climate, and the global economy.

Retail Sales

Retail sales strengthened slightly over the reporting period, although some weakness was seen in autos and in sales at stores located near the Mexico border. Contacts in Austin noted very healthy retail activity, with national chains and local retailers eager to expand in the region but rather limited by lack of available retail space. One contact noted a negative impact from Tropical Storm Imelda. Outlooks were largely unchanged, an improvement from the deterioration noted so far this year.

Nonfinancial Services

Nonfinancial services activity expanded moderately over the reporting period. Growth in professional and technical services continued to lead the expansion, while administrative and support services also picked up pace. Staffing services contacts reported high demand in all markets, with particular strength in IT, accounting, banking, and healthcare. Activity in the transportation and warehousing sector remained mixed, with strong airline passenger demand and rising sea cargo volumes but some weakness in air and rail cargo volumes. Both rail and sea cargo contacts reported declines in trade with China, in some cases offset by stronger trade with Southeast Asia.

Service-sector outlooks were slightly positive. Contacts cited uncertainty as a serious issue hampering future demand and business expansion plans. Tariffs, the presidential election, and national or global recession fears were among the drivers of increased uncertainty.

Construction and Real Estate

Home sales continued to trend upward. The increase was broad based, with some contacts noting that sales were better than expected. New-home sales appeared to be the strongest in Austin. Recent flooding in the eastern parts of Houston may impact housing starts in coming weeks. Margins improved slightly, and outlooks were cautiously optimistic, with some builders concerned about an impending U.S. recession.

Apartment demand was strong in Dallas-Fort Worth (DFW) and Houston in the third quarter. Rent growth firmed up close to its long-term average rate in DFW while rent increases in Houston remained sluggish. Apartment leasing stayed solid in Austin, with rent growth in the metro well above the U.S. average. Healthy demand along with a slowing pace of deliveries boosted rents in San Antonio. Apartment construction remained elevated, particularly in DFW.

Reports on the office market indicated leasing continued to be active for new Class A space. Industrial demand and construction remained solid, although there was some concern about the high levels of construction in Houston.

Financial Services

Growth in loan demand and volumes picked up pace over the reporting period, led by particular strength in real estate lending. Volumes for commercial and industrial loans edged up, while consumer loan volumes declined modestly. Credit standards tightened in all loan categories. Nearly half of contacts noted declining margins. Bankers reported that business activity improved further over the past six weeks, and outlooks were unchanged. Bankers cite concerns regarding lower interest rates, the uncertain business climate, and political and trade tensions.


Drilling activity in the Eleventh District continued to erode, contributing to notable weakness in oilfield services. However, oil and gas production continued to rise and well completion continued to increase in the Permian Basin.

According to contacts, the attacks on Saudi Arabian oil facilities did not change capital spending expectations in the oil and gas sector—it would take a lasting increase in the price of oil to influence those plans. Firms were slightly more pessimistic in their outlooks for the remainder of the year than they were during the previous reporting period thanks to spending cuts and a weaker economic outlook.


Hot and dry weather continued across most of the District, with some parts of Texas entering severe to extreme drought. As a result, crop and pasture conditions deteriorated over the reporting period, though harvest was already well underway for row crops. Yields were favorable for much of the 2019 corn and sorghum crop, which at current crop prices has allowed many producers to cover their costs. Wheat and cotton yields were good but prices were below break-even levels. Contacts report a bearish outlook for cotton prices as export and domestic demand estimates are being cut due to slower economic growth, and supply estimates are not being cut as much as anticipated. Trade issues were still very prominent on the minds of agricultural producers, however some contacts reported more optimism regarding a resolution.

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