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Reports on Regional Economic Activity

Eleventh District Beige Book

January 18, 2023

Summary of economic activity

Modest growth continued in the Eleventh District economy overall. Growth accelerated in manufacturing but abated in the service sector. Retail sales and home sales fell further, while oil and gas activity expanded. Rising interest rates prompted further deterioration in loan demand. Local nonprofits cited higher demand for assistance amid rising household costs. Rainfall improved agricultural conditions. Employment growth remained moderate overall and wage growth stayed elevated. Prices climbed further although firms expect pressures to moderate somewhat next year but remain elevated. Outlooks were mostly pessimistic except for the energy sector, and many contacts voiced concern about weakened demand, a potential recession, and inflation.

Labor markets

Employment growth remained moderate overall. Hiring was robust in manufacturing and energy but slowed slightly in the service sector and stalled out in retail. Hiring difficulty remained a top business concern, particularly in energy, hospitality, education, and healthcare, though there are some signs of easing in other sectors. A restaurant said they turned away business in December due to staffing shortages.

Wage growth remained elevated. In a Dallas Fed survey of 265 executives in the service sector, average wage growth in 2022 was 7.4 percent. Reported wage growth was even higher in manufacturing and retail—averaging 8.5 and 8.2 percent, respectively. Multiple manufacturing contacts mentioned investing in automation due to high labor costs. Looking ahead to next year, contacts overall expect to raise wages 5.6 percent, on average.


Input costs remained elevated, though upward pressure eased slightly in December, continuing the trend seen throughout most of 2022. Contacts reported input price increases of 9.6 percent last year, on average, and expect a 5.9 percent increase this year. In the energy sector, cost growth remained high but eased in the fourth quarter. Manufacturers noted cost increases in excess of 20 percent on certain items last year. Meanwhile, growth in selling prices did not ease in the latter part of 2022 but instead remained stubbornly high. Contacts said they raised prices by 7.4 percent last year and expect to push through price increases this year on the order of 4.7 percent amid increased consumer price sensitivity.


Texas factory output increased in December after stalling in November. New orders for manufactured goods continued to decline, however. Production growth was led by durable goods—in particular fabricated metals and machinery, with some contacts noting increased demand from the oil industry as a driving force. Weakness continued in chemical manufacturing, and contacts noted slowing global demand for PVC and other materials used in interest-rate-sensitive sectors like construction and automobiles. Supply-chain issues continued to improve. Overall, outlooks weakened, with more than half of contacts noting waning demand and/or recession concerns. Other headwinds cited were elevated input costs, labor shortages, and higher labor costs.

Retail sales

Retail sales continued to decline over the past six weeks. A clothing store noted both less traffic and lower average sales per transaction, while wholesalers of nondurable goods reported an increase in sales in December. Auto sales stabilized after declining last fall, though auto dealers continued to note that higher interest rates were hampering business. Outlooks worsened, with concern about a potential recession, rising interest rates, and inflation.

Nonfinancial services

Service sector activity was flat in December, with growth abating amid reports of a slowdown in consumer spending. Business services and education and health saw a contraction in revenue while transportation services posted continued revenue gains, citing increased cargo volumes. Airlines reported unseasonably strong leisure demand but noted business travel had yet to fully recover from the pandemic. Activity in the leisure and hospitality sector held steady. Staffing firms reported solid demand for their services, though one noted a slowdown in some manufacturing and construction sectors. Outlooks deteriorated overall, with a majority of contacts citing weakening demand and/or potential recession as a primary concern going forward.

Construction and real estate

Activity in the single-family housing market continued to decline. Home sales and prices fell further, and cancellations stayed elevated. In homebuilding, buyer incentives were widespread and construction costs were generally high, putting downward pressure on builders' margins. Outlooks weakened. Apartment leasing softened beyond seasonality, with occupancy and rents slipping modestly.

Demand for office space remained somewhat weak, pushing up sublease space availability. Fundamentals in the industrial market stayed solid, but contacts expressed concern about the pipeline of new construction. Investment sales activity has slowed noticeably, as investors take a wait-and-see approach partly due to the higher cost of capital and economic uncertainty.

Financial services

Loan volumes declined for the third reporting period in a row, and loan demand fell further. Volume declines were across all loan categories but led by residential real estate, while commercial real estate and commercial and industrial loans experienced an accelerated decline from the prior period. Loan nonperformance increased slightly overall, with the rise stemming from residential real estate and consumer loans. Contacts again overwhelmingly reported loan price increases, and credit standards and terms continued to tighten. Business activity experienced a significant decline, and expectations for the next six months are for loan demand and business activity to decline further and loan nonperformance to increase.


Energy activity continued to expand during the reporting period, with a slight increase in the Eleventh District rig count over the past six weeks and sizeable increases in both oil and natural gas production in fourth quarter 2022. Contacts seemed confident that crude oil markets will remain tight for the next several years, keeping oil prices in the $80 to $90 per barrel range, which is high enough for most District producers to profitably drill new wells. Due to high demand for oilfield services and supply chain issues, the industry remained constrained on equipment and labor, and expectations were for activity to expand at a slow, steady pace this year. Outlooks improved overall, and most contacts expect increases in capital spending this year.


Rainfall continued to improve soil moisture conditions, setting a good foundation for winter wheat and spring crops. Cotton exports declined, and contacts cited weak mill demand prompted by low consumer demand. Relatively high grain prices and promising soil moisture will likely favor an increase in grain acreage and reduction in cotton acreage next year.

Community perspectives

Nonprofits reported higher demand for their services during the reporting period. Housing affordability remained a key concern amid higher rents, and some struggling households have moved further away from urban cores, leaving them without public transportation access and further away from nonprofit resources. Evictions have risen notably in some areas. Food insecurity was another primary issue, as lower-income individuals faced challenges in deciding to pay for rent versus groceries when there was not enough money for both. Contacts said a lack of affordable childcare was stunting economic mobility for lower-income women, with one nonprofit noting some improvement in daycare availability but no relief yet in pricing. Community colleges report continued growth in career and technical program enrollment, and numbers are up from pre-pandemic levels. Overall community college enrollment is still down, but rebounding.

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