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Dallas Beige Book

July 13, 2016

Economic activity in the Eleventh District expanded slightly over the past six weeks. Manufacturing activity fell, while demand for nonfinancial services increased. Retail sales rose slightly on net, with automobile sales remaining strong. Real estate activity continued to expand in most markets. The energy sector saw improved sentiment, although demand for oil field services largely remained depressed. Loan growth softened and agricultural conditions remained favorable. Reports of employment changes and price pressures varied. Outlooks were generally positive but more cautious, with the upcoming presidential elections and the Brexit vote driving some of the uncertainty.


Price pressures were mixed over the reporting period. Input costs were flat to up, with some contacts noting sharp increases in steel prices. Selling prices were mostly flat to down in the manufacturing sector, although a few manufacturers reported modest increases. A couple of retailers mentioned offering more discounts in the second quarter, and auto dealers said a slight increase was expected in auto prices with the new model year release. Excess capacity in the rail and airline industries exerted downward pressure on prices, and one staffing firm noted cutting margins for some clients, although others noted no change in rates. Courier cargo prices rose and professional and technical services firms said prices were up compared with last year. Fuel and chemical prices on the Gulf Coast increased with oil prices over the reporting period, but remained below year-ago levels.

Labor Market

Employment reports varied across sectors. Employment levels declined in the manufacturing sector, and energy service firms continued to trim payrolls. Retail employment was flat, with scattered reports of hiring. Reports of hiring were more prevalent across the service sector, with accounting firms noting ongoing labor shortages and leisure and hospitality contacts noting difficulty retaining employees and finding qualified candidates both at the entry and management level. There were also some reports of skill shortages and hiring difficulties for IT professionals, medical staff and construction workers.

Wage pressures were minimal aside from upward pressure for certain skilled occupations in industries such as high-tech manufacturing, legal services and auto sales. Some contacts noted concern over the new overtime pay ruling and its impact on compensation costs.


The manufacturing sector contracted over the reporting period, with contacts citing headwinds from uncertainty in global markets, slow global growth and low oil prices. Construction-related manufacturers saw stable demand, with a few contacts noting dips in activity due to recent rains. Dallas continued to outperform other large Texas metros, while construction backlogs in Houston were drying up. New orders declined in food, machinery, primary metals and transportation equipment manufacturing, and there was little to no growth in high-tech manufacturing. Overall demand for fabricated metals fell over the reporting period but a few manufacturers noted an uptick in bookings.

Refinery utilization rates remain healthy but margins have softened. Gulf Coast chemical producers were generally receiving better margins due to the wider spread between oil and natural gas prices, as chemicals domestically are produced with natural gas and have a cost advantage over oil-based production in other parts of the world. That said, the strong dollar remained a challenge. PVC demand increased in May to its highest level in three years, which may indicate a pickup in U.S. construction. Outlooks remain positive for 2016, although were soft compared to 2015.

Retail Sales

Reports on retail demand varied, but overall sales grew modestly during the reporting period. Softness was attributed to sluggish sales along the Texas/Mexico border, slow economic growth in Texas, and continued conservative spending on apparel. Inventories were reported to be in good shape as contacts were actively managing them. Sales this year are expected to be below 2015 levels, despite some retailers anticipating a pickup in the second half of the year.

Auto sales held steady and were in line with year-ago levels. Auto sales are projected to be strong in 2016, but contacts expressed concern about the potential negative impact of the election on consumer confidence.

Nonfinancial Services

Overall demand for nonfinancial services expanded over the past six weeks. Staffing services firms said demand was mixed. Construction placements saw a slight seasonal increase, and orders for workers in healthcare, education, logistics and distribution sectors rose as well. Demand for engineers softened and there were layoffs in the steel industry. The Dallas area continued to be the strongest market. Higher demand for professional and technical services was reported. Legal sector activity grew at a slower rate as litigation work was largely mixed, but transactions work increased. Energy-related legal work ticked upward due to higher demand for bankruptcy and corporate restructuring. Accounting demand was robust, with a healthy pipeline, and consulting firms said growth in Austin and Dallas was keeping them busy. Leisure and hospitality contacts saw continued moderate growth in demand in all major Texas markets, including Houston and the Gulf Coast, but cited some softening in peripheral oil and gas areas. Outlooks were cautious, with some leisure and hospitality contacts voicing political uncertainty as a concern.

Cargo volumes were mixed over the reporting period. Chemical plant expansion along the Gulf Coast boosted truck cargo volumes, while declines in courier and air cargo were reported. Overall rail cargo dipped as well; however, grain shipments rose strongly, leading to increased optimism in outlooks. Airline passenger demand was stable over the reporting period but slightly lower than a year ago.

Construction and Real Estate

Home sales rose during the reporting period. Sales continued to be characterized as good in Austin and Dallas-Fort Worth, and steady to down in Houston. Sales of entry-level and first-move-up homes continued to be strong, while a few contacts noted weakness at the very high end of the market. Homebuilding was active, although some delays were reported due to recent rains. Builders in Houston were contracting for fewer lots and there was some softness in lot pricing in Houston.

Overall, apartment demand was strong. Rent growth was brisk in Austin and Dallas-Fort Worth and steady in San Antonio. Multifamily construction ramped up in Dallas-Fort Worth. In Houston, new apartment deliveries were putting pressure on rents and one contact noted negative rent growth. Still, occupancy remained high in all four major metros. Outlooks for the residential sector were positive except for Houston, where contacts expect continued weakness this year.

Demand for office space was healthy in Dallas-Fort Worth, but dampened further in Houston where sublease space continued to spike, putting pressure on office rents. Industrial leasing was active in both metros.

Financial Services

Loan growth softened over the past six weeks. Commercial and industrial loan growth fell, and commercial real estate loan growth appears to have finally plateaued. Residential lending continued to expand at an anemic rate, excluding refinancing and home equity loans. Consumer loan growth remained steady, particularly due to strong auto lending. Most contacts noted softer deposit growth and no change in interest on deposits. Loan standards were very tight for energy related loans; however, strong competition among lenders has relaxed standards across other loan types. Contacts cited heightened uncertainty in their outlooks following the Brexit vote, and were more pessimistic than in the previous reporting period.


Demand for oilfield services remained depressed even as overall business activity improved and the rig count ticked up over the reporting period. Defaults, bankruptcies and mergers and acquisitions continued to climb. Firms were increasingly confident that oil prices have found a bottom and that market fundamentals will tighten in the second half of the year. However, firms would like to see these higher prices for a while longer before making any changes to existing business plans. Contacts say the worst is likely over, but there is little hope for substantial growth in activity or employment before 2017.


Production prospects for crops remained strong across most of Texas thanks to good soil moisture and favorable weather. Crop prices generally improved over the reporting period and, while still fairly low, some pushed above break-even levels. Developments on the livestock side were mixed. While measurable rainfall across the state continued to benefit pasture conditions, cattle prices fell and feed costs rose.

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