Economic Research Publications
Dallas Beige Book
June 8, 2011
The Eleventh District economy expanded at an accelerated pace over the past six weeks. In particular, energy sector respondents noted increased activity. Sectors that had previously reported weak demand, including accounting, legal and financial services--as well as the construction sector--noted improvement since the last report. Price pressures remain elevated, and more firms expect to add to payrolls in coming months.
PricesPrice pressures remain elevated, according to most responding firms in the Eleventh District. Many manufacturers said they had raised prices since the last report, but not enough to offset raw material cost increases, leaving margins squeezed. Several responding firms said price increases were becoming necessary to cover previous upticks in fuel, freight and or raw materials prices. Most construction-related manufacturing firms either planned or had implemented selling price increases; and construction firms expected cost increases to stick, noting producers of construction-related products could no longer absorb higher energy and freight costs. Several service sector companies reported increased ability to raise prices during the past six weeks. Most said the increases were necessary to cover previous increases in fuel, freight and/or raw materials prices. Higher demand for accounting-advisory services has resulted in price increases. Agricultural contacts said crop prices had fallen slightly but remain at relatively high levels. Retailers said prices increased modestly over the past six weeks, and most expected their selling prices to remain elevated due to increases in input prices and transportation costs.
The price of crude oil stayed over $105 per barrel for much of April before falling back under $100 in mid-May. Gasoline prices remained elevated during the reporting period due to concerns about refinery flooding along the Mississippi, according to contacts. Natural gas prices remained low, in a range between $4.15 to $4.30 per Mcf. Since the last report, prices increased at a strong pace for many important petrochemical products.
Labor MarketEmployment levels rose or held steady at most responding firms. There were increased reports of hiring activity compared with the previous reporting period. Most staffing firms noted strong demand at stable levels. Contacts in financial services, auto sales, construction and related materials, and transportation manufacturing reported hiring increases. Some high-tech manufacturers noted an increase in employment for skilled workers. Wage pressures were slightly higher, with increases reported by some accounting and finance firms. Moreover, high-tech respondents noted compensation was increasing due to the return of bonuses that had been temporarily halted during the recession.
ManufacturingMost construction-related manufacturers noted a pick-up in demand since the last report. Some of the uptick was seasonal and expected, but several contacts said that it was difficult to separate out seasonal demand from improved business conditions. Public projects still account for a large share of orders, but contacts said demand had increased because of an acceleration in private projects such as apartment and commercial buildings. The one exception was the lumber industry, where responses mostly reflected weaker conditions over the past six weeks.
Respondents in high-tech manufacturing said sales and orders remain strong overall, but demand was mixed. One source of weakening demand was the ripple effects of the natural disaster in northern Japan as shortages of parts fed into slowdowns in demand for complementary parts. Several respondents noted a broad pickup in consumer demand from India and China and, within the US, an increase in demand for products such as 3-D televisions, tablets and smart phones. Contacts also reported an increase in orders for semiconductors due to a pickup in demand from the industrial, medical and auto sectors.
Reports from most paper manufacturers reflected stable to improved orders stemming from broad-based economic strengthening. Transportation manufacturing firms said orders were strong and several said demand had risen slightly since the last report. Respondents in the food industry said sales continued to increase at a steady pace over the past six weeks and outlooks remained positive.
Petrochemical firms said supplies were very tight, in part due to restricted capacity caused by unplanned domestic plant outages, as well as reduced production in or near the Japanese earthquake zone. Demand remains strong for most products, and prices are rising. High profits and strong margins for ethylene producers have led to announcements of several new plants and expansions in the Gulf Coast and elsewhere. Refiners reported extremely strong profit margins, and said domestic gasoline inventories were near the bottom of the normal range.
Retail SalesRetail activity increased moderately over the reporting period. Looking at March and April and smoothing out fluctuations due to the Easter holiday, demand has increased in the low- to mid-single digits over the prior year. Some contacts mentioned gasoline prices as a concern but the effects of elevated prices have been limited thus far. Texas continues to perform above the national average, according to one large retailer, and the outlook for 2011 remains positive.
Automobile sales continue to improve, but inventories will likely be thin in coming months due to the effects of the tsunami on Japanese manufacturers supply chains. Contacts expect demand to continue improving at a modest pace throughout 2011.
Non-financial ServicesStaffing firms reported growth in orders has leveled off or slowed slightly since the last report, although demand remains strong, particularly from the energy, healthcare, insurance and banking sectors. Outlooks are positive, and contacts expect demand to remain stable through year-end. Demand for accounting services increased since the last report, as is typical for this time of year. Improved demand has helped firms raise fees for advisory services. Legal firms noted mostly steady demand, with some strength in corporate, intellectual property litigation, and real estate services.
Reports from transportation services contacts were mostly positive. Intermodal transportation firms noted an increase in cargo volumes during the reporting period. Railroad shipments rose moderately, with particularly strong volume growth in grains, metals, petroleum and chemical products. Container trade volumes declined but were up from year-ago levels. Growth in small parcel shipments accelerated during the reporting period buoyed by demand from the wholesale trade and retail sectors. Airline traffic held steady over the past six weeks. Demand for travel within the US and to Latin America was solid, but load factors for international flights to and from the Pacific region remained weak. Contacts expect modest improvement in airline demand and revenue this year.
Financial ServicesFinancial firms reported steady overall loan demand. Large banks with a national footprint reported some pickup in commercial and industrial loan demand with increased corporate activity, and commercial real estate (CRE) activity has shown recent improvement as well. Regional banks noted that loan demand remains pretty flat, although optimism persists for pockets of homebuilding and some CRE lending across the state. Demand for auto and consumer loans declined. Contacts continue to note that loan pricing remains aggressive amidst a highly competitive lending landscape. Outlooks are generally positive in light of better outstanding loan quality and continued slow improvement in lending conditions.
Construction and Real EstateEleventh District housing contacts said sales remain at low levels, but optimism has increased along with better traffic. Sales are expected to improve in the second half of 2011. As reported in previous reports, sales in the higher price points continue to improve. Apartment demand continues to accelerate, and rents have edged up since the last report.
Private nonresidential demand has improved. Leasing activity is growing and there are reports that industrial and office construction are increasing from very low levels. Sales of commercial buildings are also picking up across the District.