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Reports on Regional Economic Activity

Eleventh District Beige Book

July 12, 2023

Summary of Economic Activity

The Eleventh District economy continued to expand modestly buoyed by gains in the service sector and single-family housing. Manufacturing output and retail sales fell. Credit conditions tightened further, and loan demand continued to decline. Drilling activity dipped due to lower oil and gas prices, while recent rains boosted district agricultural conditions. Local nonprofits continued to cite higher demand for assistance. Employment rose moderately, and wage growth remained high. Input cost and selling price pressures were elevated in the service sector but largely subsided in manufacturing. Perceptions of business conditions continued to worsen as uncertainty rose, and contacts noted that diminishing demand, higher labor costs, the rising cost of credit, and inflation were weighing on outlooks.

Labor Markets

Employment grew moderately over the reporting period. Hiring slowed to a crawl in manufacturing, while service sector firms added to payrolls at an average pace. While oilfield services firms were still hiring and noted significant challenges in recruiting workers, more layoffs were seen in natural gas regions due to weak outlooks. Scattered reports of layoffs also came from transportation services and manufacturing. Recruitment remained a challenge for several firms. Reports of labor supply constraints continued in the health care sector and there were mentions of worker shortages in some other sectors as well, including transportation and retail. In a June Dallas Fed survey of more than 350 executives, 44 percent of firms noted being understaffed and looking to hire while 12 percent said they were opting not to hire despite being shorthanded.

Wage pressures were little changed, remaining elevated. Higher labor costs continued to be a primary concern for many firms including nonprofits, though there were some mentions of easing in IT wages.


Price pressures were mixed; still elevated in the service sector but fully subsided in manufacturing. Fuel and construction materials prices were flat to down over the reporting period. Oilfield services firms reported declines in day rates for drilling rigs but stable frac fleet costs. Several contacts cited higher borrowing costs. Airlines reported high ticket prices amid strong demand and constrained capacity.


Texas manufacturing output contracted slightly in June, following several months of largely flat activity. Output was flat to down in many industries, though increases were seen in fabricated metals, machinery and transportation equipment manufacturing. New orders fell at a fairly similar pace as in the prior reporting period, which a few manufacturers attributed to customer destocking and slowing construction activity. Reports from refineries and chemical producers were mixed. Overall, manufacturing outlooks worsened further, and uncertainty continued to climb.

Retail Sales

Retail sales dipped modestly in May and June after increasing in April. Auto dealers noted mixed activity, with some reporting strong demand for new vehicles and others noting declines. Pharmacies and building material and garden supply retailers continued to cite higher sales, while clothing, food and beverage, and nonstore retailers saw declines. Inventories increased on net. Overall outlooks were little changed but weak, and some contacts said it remained challenging to plan for the next six to 12 months.

Nonfinancial Services

Service sector activity continued to expand albeit at a rather modest pace in June. Revenue growth was led by transportation and warehousing services followed by miscellaneous service and professional, scientific, and technical service firms. Healthcare revenues declined, and demand for health services, though improving, remained below pre-pandemic levels. Accommodation and food services firms said revenues continued to weaken which they attributed to a slowdown in leisure spending stemming from economic uncertainty. Staffing firms noted mixed demand, with flat activity in manufacturing but persistent strong placements of white-collar workers in the service sector, particularly healthcare. Airlines continued to report strong demand, mostly for leisure travel. Business travel activity remained uneven, with solid demand from the public sector but declining activity from the technology and energy industries. Overall outlooks were flat, but several contacts said that heightened business uncertainty had put buying decisions and projects on hold.

Construction and Real Estate

Housing demand rose during the reporting period. Existing-home sales increased, and builders noted solid demand, particularly of quick move-in or inventory homes, as buyers were hesitant to deal with the uncertainty surrounding mortgage rates. Dallas–Fort Worth and Houston were characterized as the strongest markets. Incentives such as rate buydowns remained in place, and prices were largely stable, though there were reports of increases in selected areas. Construction cycle times have improved, though a shortage of transformers was dampening completions. Builders have reaccumulated their backlogs of build-to-suit homes, and housing starts are expected to increase in the second half of the year. Outlooks remained cautious, and contacts noted tighter lending for construction and development loans.

Activity in commercial real estate was little changed since the last report. Apartment rents were flat to up, and leasing activity picked up moderately. Office markets continued to face headwinds, while industrial markets generally remained solid. Investment sales activity stayed subdued, and contacts said banks were raising the loan-to-value ratios on loans. Outlooks were mixed.

Financial Services

Loan demand declined for the seventh period in a row, and most bankers expect a further deterioration over the next six months. Overall loan volumes continued to fall, with particular weakness seen in consumer lending. While commercial real estate and commercial and industrial loan volumes continued to see marked volume declines, residential real estate lending remained stable. Loan nonperformance increased, with the rise led by commercial real estate loans. Credit standards and terms continued to tighten, and loan pricing continued to rise. Bankers' outlooks remained pessimistic, with contacts expecting a further contraction in business activity and an increase in nonperforming loans over the next six months.


Drilling activity for oil and gas wells declined over the past six weeks. The Eleventh District rig count fell moderately as lower prices for crude and natural gas made some projects uneconomical. Well completions were holding up better than drilling activity. Most contacts reported that tighter credit conditions since February have had slight to no impact on their firms, though a few independent producers said it had considerably reduced their ability to invest in new projects. Outlooks varied. The industry is still largely expected to increase oil-directed drilling and completion activities modestly through year end, while prospects on the natural gas side remained weak due to subdued prices.


Drought conditions eased substantially over the past six weeks, with now less than a quarter of the district in drought. Increased soil moisture broadly improved crop and pasture conditions, though heavy rains caused significant disruption to cotton planting in the Texas High Plains. A sizeable portion of cotton acreage in that area may not be harvestable this year, either because of prevented planting or crop flooding. Row crop prices generally moved up over the reporting period, and cattle prices increased dramatically, driven by steady demand for meat but reduced supplies of both cattle and beef.

Community Perspectives

Nonprofits noted increased demand for their services. Housing instability and affordability remained a top concern, and several contacts said that inflation and gentrification of neighborhoods has made housing costs, including property taxes, unaffordable for low to moderate income households. As a result, some are doubling up and living with other families in the same home. Fundraising was a challenge for some nonprofits, and a contact noted that the American Rescue Plan Act (ARPA) funds were running low. A nonprofit said age restrictions on certain program funding was making it challenging to provide services to other age groups. House Bill 8 recently passed by the Texas legislature will add about $680 million in the state budget for community colleges.

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