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Dallas Beige Book

April 11, 2012

The Eleventh District economy grew at a moderate pace over the past six weeks. Overall manufacturing activity continued to expand. Demand for business services rose slightly, and transportation services activity remained positive overall. The housing sector continued to improve modestly, and nonresidential leasing activity remained solid. Respondents said retail sales grew at a modest pace and auto sales strengthened. Financial firms noted a modest pickup in loan demand. Energy activity continued to be strong, although gas-directed drilling activity weakened. Drought conditions improved. Employment levels were steady to slightly higher. Prices were unchanged or somewhat higher, according to contacts. Outlooks across industries remain positive, but more respondents noted concern about higher energy costs.


Responding firms said prices held steady or increased, and several noted concerns regarding rising fuel costs. Food producers reported increases in selling prices to offset high input costs, and airlines noted higher fares. Intermodal transportation firms said they had increased prices in response to higher fuel costs, and parcel shipping firms noted plans to increase surcharges to offset rising fuel costs. Retailers and automobile dealers said higher gas prices had not significantly affected sales. Agricultural commodity prices declined since the last report.

The price of WTI averaged $105.95 per barrel during the reporting period. Natural gas prices fell from $2.50 per thousand cubic feet to below $2.20. Gasoline prices rose by 34 cents per gallon over the past six weeks, and the price of diesel rose by 20 cents. Prices of petrochemicals and plastics also increased since the last report.

Labor Market

Most responding firms said employment levels held steady since the last report, although several noted slight increases. Staffing firms said demand softened slightly in March, but direct hires were still strong. Staffing contacts also noted shortages of skilled workers in IT and accounting. There were scattered reports of small employment increases in the high-tech manufacturing, transportation manufacturing, metals, auto sales and airline industries. Accounting firms noted a pickup in temporary workers due to the tax season. Wage pressures remained minimal, although slight salary increases were noted by some legal, auto and high-tech manufacturing firms.


Overall demand for construction related products increased since the last report, although a few respondents' outlooks have become slightly more guarded. A cement producer and a lumber firm noted improving demand in the residential sector, while a fabricated metals producer said private projects related to oil and gas, manufacturing and highway construction were driving the pickup in demand. Primary metals firms noted that commercial construction projects including hospitals, schools and government buildings were a factor behind improving demand, along with solid sales to truck and trailer manufacturers.

Respondents in high-tech manufacturing reported that orders continued to grow at a modest pace since the last report. According to contacts, key demand drivers continue to be mobile applications, cloud computing and automobiles. One contact noted that demand for DRAM memory remains weak relative to supply, while demand for flash memory and logic devices is generally good. Most respondents expect demand to continue to grow at a modest pace over the next three to six months.

Aviation equipment manufacturers said demand weakened during the reporting period. Contacts were less optimistic in their outlooks for the year, citing high energy prices and the bankruptcy of several service and maintenance companies that serve the airline industry. Food producers said sales activity increased over the past six weeks, and near-term outlooks were positive. Reports from paper manufacturers were mixed but overall suggested steady to slower growth in demand. Contacts expect moderate growth for the year.

Petrochemicals producers said planned maintenance outages have tightened capacity, constrained production and raised the price of ethylene. Capacity was reduced by closures during the recession, and new modern plants will not be on line for several years. The pass-through of higher ethylene prices has weakened export demand for petrochemical products including polyethylene. Gulf Coast refiners noted steady margins overall since the last report.

Retail Sales

Retail sales grew modestly over the comparable period a year ago and performed in line with expectations. According to some national retailers, the Eleventh District's strength relative to the nation declined as warm weather in the north and east prompted strong spring clothing sales in those regions. Contacts noted that consumer demand appears healthier, and most expect moderate sales growth for the year. Inventories are being managed closely.

Automobile sales showed strength in late February which continued through the first half of March. Contacts noted that customer concern over gas prices remains muted at this point, but they have seen more interest in smaller vehicles recently. The outlook for sales remains optimistic.


Demand for staffing services softened slightly at the end of March, following solid activity earlier in the year. Still, orders for direct hires remained strong and shortages of skilled accounting and IT professionals were reported. Outlooks were positive as contacts expect demand to bounce back in the second quarter. Legal firms reported a slight pickup in demand for their services. Contacts said mergers and acquisitions and transactional service activity had surpassed expectations, and there is continued strength in demand for intellectual property, energy and some real-estate related legal services. Accounting firms reported a modest increase in overall activity and characterize this year's tax and audit season as unusually good.

Reports from transportation service firms were mixed. Intermodal firms reported an increase in cargo volumes buoyed by shipments of oil field supplies. Small parcel shipments increased, while air cargo volumes and railroad shipments declined during the reporting period. Airlines reported solid passenger demand over the past six weeks. Domestic air travel increased, while international air travel demand was flat. Contacts said customers remained price sensitive and were purchasing restricted discount fares. Airline contacts expect passenger demand to remain stable or improve in the near-term.

Construction and Real Estate

Housing demand continued to pick up over the past six weeks. Tight new home inventories led to a modest rise in construction activity. Sales activity rose and inventories fell in the existing home market. Some contacts expect lower inventories to impact prices positively in 2012. Apartment leasing activity remained robust since the last report.

Office and industrial leasing activity continued to improve. Contacts noted that the energy and high tech sectors were driving much of the demand for space. Sales of nonresidential investment properties were unchanged over the past six weeks. Respondents noted some trepidation among investors, even though capital is widely available. The one exception was apartment properties, which remain popular among investors according to contacts.

Financial Services

Financial firms reported a modest uptick in loan demand. National banks reported strength in middle-market lending and large corporate lending activity. Regional banks also noted improved sentiments, and several banks suggested energy-related activity remains robust. Outlooks are generally less pessimistic, and some outright optimistic, with an overall theme that "loan demand is slightly stronger." The most optimistic contacts were large bank lenders or regional banks that expressed strength in renewed corporate lending. Loan pricing remains competitive. Outstanding loan quality continues to improve, and contacts continue to note fewer problem loans.


Contacts at energy-related service firms said demand and backlogs from oil-producing areas remained very strong over the past six weeks. Many respondents, however, were concerned about weaker than expected demand for gas-directed drilling and a related decline in demand for fracturing services and horizontal drilling services. While respondents said overall demand in Texas is still very strong, several noted that crews were being shifted from dry gas-producing basins such as the Barnett shale to oil-producing basins such as Permian and Eagle Ford. While such disruptions were expected to be temporary, some contacts had lowered expectations for 2012.


Rainfall continued to ease drought conditions in many parts of the District. West Texas did not receive much moisture, however, and the severity of drought there worsened over the reporting period. Prospects for 2012 crops are improved due to better soil moisture, and producers will have more flexibility with what to plant.


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