Economic Research Publications
Dallas Beige Book
October 19, 2011
The Eleventh District economy continued to expand at a modest pace since the last report. Manufacturing activity was mixed. Service sector activity held mostly steady, although retailers noted a recent pick-up in sales. There were some signs of improvement in the housing sector, and apartment demand remained brisk. Office and industrial leasing activity continued to increase, but commercial real estate investment activity fell. Loan demand was mostly unchanged, according to financial contacts. The energy sector continued to expand at a strong pace, while agricultural conditions deteriorated further. Many responding firms across industries noted their outlooks were less optimistic, reflecting uncertainty about the U.S. and global economies.
PricesPrice pressures eased slightly since the last report. Most firms said input prices were unchanged or down, although retailers noted some increases in apparel and jewelry prices. Raw materials prices were flat or down. The exception was food producers who noted increased prices for some inputs. Contacts in the agricultural sector said commodity prices moved down since the last report.
The price of WTI held between $80 and $90 per barrel for most of the survey period, but slipped under $80 by early October. As the driving season ended, the price of on-highway diesel and gasoline fell by 11 and 16 cents per gallon, respectively.
Labor MarketEmployment levels held steady at most responding firms, although there were several reports of slight hiring activity. Staffing firms continued to note steady demand at high levels. Most primary metals manufacturers reported increases in payrolls and some continue to look for additional workers. Scattered reports of hiring came from contacts in the legal, auto sales, airline and transportation manufacturing industries. Contacts in food manufacturing and financial services said hiring activity had abated. Wage pressures remained minimal, although upward pressure was noted by select retail, lumber and transportation manufacturing firms.
ManufacturingReports were mixed among construction-related firms, but most contacts described demand as steady during the reporting period. Several responding firms said ongoing public projects were buoying activity. Fabricated metals firms noted a slight pickup in demand and two lumber producers noted a pickup believed to be due to home improvement projects and demand from homebuilders. Construction-related outlooks were mostly unchanged, with a slow recovery expected.
Respondents in high-tech manufacturing said that sales growth remained positive but continued to slow and new orders declined. Demand weakened across consumer and business markets and throughout most regions of the world. Producers of consumer electronics are reportedly very cautious about demand over the holidays and into the first half of next year, and have reduced their orders for semiconductors. Because of the decline in new orders, respondents in the high-tech sector expect sales to weaken over the next six months.
Reports from paper manufacturers were mixed. Box producers noted orders from the food and beverage industry had fallen, but demand from retailers had picked up. One paper firm said strong demand was leading to lower inventories. Outlooks were mostly downbeat, due to fluctuations in the stock market and speculation about another recession. Non-defense transportation manufacturers said demand held steady at pretty good levels, and is up significantly from a year ago. Responding firms were cautiously optimistic in their outlooks, noting troubles at the national level had not impacted them yet. Food producers said sales were flat since the last report, and outlooks were positive, although firms were not hiring because of concerns about current U.S. economic conditions.
Petrochemical demand weakened in September. Ethylene spot prices fell despite two large plants shutting down. Domestic demand for polyethylene is weak, and the strong dollar has cut off exports to Asia and Europe. Exports to Latin America also weakened as Asian producers offered prices low enough to displace U.S. exports. Refiners said demand for refined products fell slightly as summer ended. Margins remain strong, but have narrowed.
Retail SalesRetail sales growth slowed over most of the reporting period, but picked up in the final weeks of September. A long hot summer led to delayed fall clothing purchases, however contacts said cooler weather recently spurred seasonal sales. The higher end of the market continues to fare better than lower price point offerings. Eleventh District growth trended roughly in line with the nation, according to one large retailer. Expectations are for modest growth this holiday season.
Automobile sales were steady with some slowdown in traffic attributed to economic concerns caused by pessimistic headlines. Despite concerns, customers continue to buy vehicles. Inventories are somewhat light, but at appropriate levels for the most part. Used car supply remains constrained resulting in high prices. Expectations are for a continued moderate pace of sales growth.
ServicesOverall demand for staffing services continued to hold steady at high levels. One contact noted a slight pull back that was characterized as "fear driven." Direct hires continue to outpace temporary placements. Outlooks were mixed, with half of the respondents more cautious and half more positive. Even contacts with positive outlooks expressed concern about the upcoming election cycle and regulatory uncertainty. Accounting firms said demand for accounting services remained steady. Outlooks were unchanged, but one contact noted the next few months will be telling, as customers appear to be waiting for greater clarity about the economy and possible regulations. Demand for legal services remained unchanged.
Most transportation services firms said demand held steady or rose, but many firms' outlooks weakened further since the last report. Intermodal cargo volumes were flat, and contacts say outlooks are negative for 2012. Railroad firms said volumes increased during the reporting period, but that the numbers were somewhat artificially inflated due to capacity coming back online after the flooding in the northern U.S. Container volumes declined modestly over the past three months, but picked up in August. Small parcel shipments held steady in August, but shipping firms have lowered expectations of growth this year. Airline traffic was reportedly holding up well and has been flat to slightly improved over the last six weeks in terms of passenger volume. Demand for travel to Latin America remains strong, and travel to Japan is weak. Airline industry outlooks are positive, but more uncertain.
Construction and Real EstateContacts in the housing sector noted some improvement, although most characterize conditions as choppy. Inventories of existing homes declined since the last report, and new home inventories remain lean. Most contacts say sales are better, although many note the strict lending environment, along with nervousness about the path of the U.S. economy, is keeping many would-be buyers on the sidelines.
Apartment demand continued to rise since the last report, and contacts are positive in their outlooks. While construction has increased, demand has kept up, and respondents believe it will be a year or two before much of the new product is available. Apartment rents continued to increase.
Commercial real estate contacts said demand for office space remained strong overall during the reporting period, but that in recent weeks clients have deferred decisions to expand. Demand for industrial space was being spurred by lease renewals rather than the expansion by existing tenants. Real estate investment activity declined in August amid uncertainty.