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Reports on Regional Economic Activity

Eleventh District Beige Book

May 27, 2020

Summary of Economic Activity

Eleventh District economic activity contracted sharply in April, while preliminary data from May point to a notable easing in the pace of decline as restrictions on businesses were gradually lifted. Activity in the energy and service sectors remained the hardest hit. Manufacturing output and new orders fell further, though food manufacturing continued to increase. Loan volumes contracted broadly, with the exception of residential mortgages and SBA's PPP funds. Home sales fell sharply from mid-March through mid-April but have been improving from low levels since then. Employment and hours worked continued to plummet, pressuring wages. While input costs were flat to slightly up, food processors noted a large increase in meat prices. Selling prices dipped further. Preliminary results from a May Dallas Fed Survey of Texas manufacturing and service firms indicated that current revenue levels for most respondents were down markedly compared with a typical May, and about a fifth said they would not be able to survive past six months if revenues did not improve. Outlooks remained weak due to uncertainty surrounding the pace and scope of the reopening of the District economy.

Employment and Wages

Employment declines were steep, spanning all metros and most industries. An April Dallas Fed survey of 400 Texas businesses in the services and manufacturing sectors showed that 47 percent of respondents had either temporarily or permanently laid off workers and 63 percent had cut hours. Energy contacts said oilfield workers were being furloughed or laid off in tandem with declining activity, and cuts were also widespread at corporate offices. A large rail firm said they have furloughed about 5,000 workers due to decreased traffic, and there were a few reports of employment cuts in real estate and construction. In contrast, a food manufacturer noted difficulty finding workers and a few finance firms said they were adding employees or using overtime to process PPP loans. Some companies said PPP funding had helped them hold on to employees.

Firms that were beginning to call workers back said that fear of infection, lack of childcare, and generous unemployment insurance (UI) benefits were preventing some workers from returning. A few staffing firms noted difficulty recruiting due to increased UI benefits. Wages were flat to down, with auto dealers and energy firms among others noting reduced benefits and pay.


Input costs were flat to slightly up except for meat processing, where contacts noted significant upward price pressures. Weak demand for most products and services further depressed selling prices, though there were reports of rising costs of PPE and related supplies. Some firms noted making cost reductions to conserve cash. Airlines reported further discounting of tickets. Rail shipment rates for some commodities rose, but pricing for most others dipped. New home prices were flat though realtor bonuses and incentives were being offered. Staffing firms reported no change in bill rates.


Output declines steepened in April, but preliminary data suggest that the pace of contraction slowed markedly in May. Declines spanned durables and nondurables, but manufacturers of transportation equipment and those tied to the oil and gas sector were among the hardest hit. Refinery utilization rates fell to 70 percent in April, well below the normal run rate of over 90 percent. Margins remained depressed and petrochemical manufacturers noted deferring maintenance and/or delaying construction projects to preserve capital. Only food manufacturers continued to cite growing demand. Overall outlooks remained starkly negative due to heightened uncertainty surrounding return to normalcy and post-pandemic consumer demand.

Retail Sales

Retail sales dipped further due to business closures and overall weak demand, with only a handful of contacts noting an improvement from low levels. Several firms also mentioned the weakness in the oil and gas industry as a headwind. Auto sales plunged in April and remained sluggish in early May, though some dealers noted a pickup in demand. Outlooks remained bleak and uncertain, mainly centered on the speed and extent of the recovery.

Nonfinancial Services

Activity in the service sector remained depressed, though the rate of decline appeared to moderate in May relative to April. A few firms that cited rising revenues noted strong backlogs, increased demand stemming from the current economic distress, or a pickup in demand from a very weak April. Firms noting continued weakness generally reported low levels of demand, particularly in travel, accommodation, and food services. Among restaurants, those with no drive-thru infrastructure were the most impacted. Airlines said passenger demand was flat during the reporting period; however, it is down 90 percent compared to year ago levels. Domestic travel was mainly limited to essential workers, while overseas traffic largely consisted of cargo. Rail, air, and sea cargo volumes decreased year-over-year as well as during the reporting period. Staffing firms saw a drop off in orders, though there were reports of increased demand for workers in healthcare, nursing, logistics, and trucking. Service sector outlooks were largely pessimistic.

Construction and Real Estate

Existing-home sales fell sharply in April and listings were down as well. New home sales plummeted from mid-March to mid-April but have been rising since then partly due to low mortgage rates. Despite the pickup, sales are generally running below plan. Home showings are either virtual or by appointment. Builders said cancellations have slowed in recent weeks from the highs seen in late March and early April. Some supply chain issues were noted due to plant closures. Several new land and lot deals were cancelled or on pause, spec building has slowed, and existing lot contracts were being renegotiated due to heightened uncertainty and the need to preserve cash. Outlooks remained weak, though they have improved slightly in recent weeks.

Multifamily contacts said rent collections in April and early May were ahead of expectations. Leasing activity was sluggish but was picking up, and rent concessions had increased. Office leasing activity slowed, particularly in Houston. Investment sales were sluggish and capital for new development has mostly dried up as investors take a wait-and-see approach.

Financial Services

Loan volumes contracted broadly, with the exception of PPP and residential real estate loans. Loan pricing continued its marked decline, and credit standards tightened considerably. Loan performance eroded across all loan types, and 83 percent of respondents expected further deterioration. Well over a third of bankers observed increased use of existing lines of credit due to COVID-19, up from 25 percent last period. On average, bankers said 13 percent of their clients were receiving loan payment deferrals. A majority of respondents have made SBA PPP loans to businesses, and most cited administrative or technology related challenges in processing and/or distributing PPP funds. Outlooks remained negative.


Eleventh District drilling and completion activity fell to record lows during the reporting period as depressed prices and storage constraints forced many firms to shut-in production. Smaller exploration & production firms reported idling most of their fracking crews and larger firms said they have been idling about half of them. Bankruptcies are expected to spike due to ongoing funding constraints. Contacts indicated that activity may be nearing a bottom, but recovery will likely be slow due to expectations of low crude oil prices through 2021.


Soil moisture levels remained favorable across most of the district, except for South Texas where there was drought. Wheat remained a bright spot with higher prices, strong demand, and solid yield prospects. Prices fell for other grain crops, particularly corn, due to declining ethanol demand. Contacts noted some concern for 2020 revenues in part due to lower grain prices. Reduced meat processing capacity due to social distancing measures and plant closures translated into lower demand and prices for cattle, even as beef prices soared.

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