Dallas Beige Book
March 6, 2013 · Dallas Beige Book Reports
The Eleventh District economy expanded at a moderate pace over the past six weeks. Reports on manufacturing activity were mixed. Retail sales were flat to up slightly, while automobile dealers noted a seasonal slowdown in sales. In the nonfinancial services sector, legal and accounting demand increased, and reports from staffing firms were mixed. Rail and cargo firms said activity weakened, but demand was above year-earlier levels. Airlines said passenger demand was flat to up since the last report. Housing demand remained strong and commercial real estate activity improved. Lenders noted flat to moderate growth in loan demand, and activity in the energy sector remained at high levels. Prices remained stable overall, and there were limited reports of wage pressure. Employment levels were steady to up.
Most responding firms noted stable prices, although some transportation service contacts said costs were up due to higher fuel prices. High tech contacts noted downward pressure on prices, particularly for memory devices.
Oil prices increased since the last report. The price of WTI averaged over $95 per barrel over the past six weeks. Natural gas prices remained depressed, while gasoline and diesel prices increased.
Employment held steady or increased at most firms. Accounting firms said the pace of hiring picked up temporarily as firms entered the busy tax season, but that long-term hiring remained moderate. Legal firms said employment increased, and some noted robust hiring activity for experienced corporate, energy and intellectual property lawyers. One respondent in the staffing industry noted a tight market for skilled workers.
Wage pressures remained mostly subdued, although a few firms noted slight upward pressure on compensation for skilled workers.
Construction-related manufacturers' reports were mixed. Lumber producers noted slow seasonal demand, while sales of cement and related products continued to increase due to solid residential building activity. Outlooks were generally more optimistic than the last report. Demand for fabricated metals rose sharply over the reporting period due to an increase in new private projects. Overall, primary metals producers noted slow seasonal demand, but one contact said they had recently been awarded a large project which would keep them busy for the next three months.
High tech manufacturers said sales were flat to slightly down. Contacts reported that demand for mobile devices softened and sales of personal computers remained weak, but sales of tablets and ultrabooks were growing. The outlook is for sales to remain flat over the next several months but then to pick up slightly during the second half of the year.
Demand for paper products was stable during the reporting period, but contacts continued to be cautious in their outlooks due to uncertainty regarding fiscal issues. Demand for food products was better than expected, and the outlook was positive among food contacts.
Reports from transportation manufacturing contacts were mixed. Sales of recreational vehicles declined, partly as a result of seasonal trends, and outlooks remained uncertain. Demand for aviation equipment increased because of new work from one large project, but the outlook was somewhat cautious because of uncertainties regarding fiscal issues.
Petrochemicals producers said Gulf Coast chemical production was up compared with last year across most product categories. Contacts said refinery operating rates declined and margins increased during the reporting period, partly due to normal seasonal patterns.
Retail sales were flat to up slightly since the last report. According to two national retailers, Texas continued to outperform the nation, albeit by a small margin. Inventories were at desired levels. Outlooks were optimistic, with contacts expecting steady improvement through the first quarter and low- to mid-single digit increases in 2013 over 2012.
Automobile dealers noted a seasonal slowdown in sales, but demand is up slightly year-over-year. Inventories were at adequate levels, although dealerships have started to build up inventories for the spring selling season. Contacts were optimistic in their outlooks; they expect demand to pick-up in the first quarter and 2013 to be a good year.
Reports from staffing firms were mixed. One contact noted sharp declines in demand for services across the board, while another reported stellar demand that broke direct- hiring records. Outlooks were cautious. Some contacts noted concern that client companies are hiring the absolute minimum to get by due to uncertainty about the Affordable Care Act.
Demand for accounting services picked up since the last report, driven by audit and tax activity. Contacts expect demand to remain strong for the next few months. Legal firms reported flat to modest growth in demand with strength coming from real estate and energy-related services and weakness coming from a lack of litigation work. Outlooks were mostly optimistic.
Several transportation service firms said demand weakened since the last report, but overall outlooks were improved. Intermodal cargo and air cargo volumes edged down since the last report, but contacts said they were level or above those from a year ago. Railroad contacts said cargo volumes were down, with coal continuing to be a weak spot. Petroleum shipments were up strongly, however and increases in volumes of lumber and wood remained healthy. Shipping companies said small- parcel cargo volumes grew strongly, propelled by retail trade. Airline contacts noted passenger demand was flat to slightly up. One contact said business travelers remained price sensitive and continued to buy advance- purchase discount fares. Outlooks were mixed.
Construction and Real Estate
Contacts in the single-family housing sector said new and existing home demand remained strong since the last report. Realtors noted that extremely low inventories were leading to price increases. Apartment demand growth continues to ease from last year, but contacts remain optimistic, expecting occupancies to remain high despite new construction.
Demand for commercial space remained moderate since the last report. Contacts said real estate investment activity continues to improve, and most remain optimistic in their outlooks.
Financial institutions reported mixed loan demand. Larger institutions noted flat loan demand, while community banks reported moderate loan growth. Consumer lending activity increased modestly, while real estate loan demand was limited. Energy activity in the Eagle Ford shale continued to drive lending activity in San Antonio, Houston and the surrounding areas. Loan pricing remained very competitive. Loan quality continued to improve, and borrowers were paying off their loans ahead of schedule. Deposits and deposit rates were flat to slightly down. Outlooks were unchanged, but there is some optimism among contacts that loan demand will increase slightly in the near term.
Activity remained at high levels, and respondents at energy-related service firms noted that the number of active drilling rigs seems to have bottomed out. Margins for services particularly pressure pumping remained tight, but contacts reported slight easing in pricing pressures. Contacts said expectations for average drilling activity in 2013 are being revised up, with most of the improvement expected to occur in the second half of the year.
The drought was the main concern over the reporting period. Feed costs remained high and cattle supplies were tight because of the drought, while beef prices and demand both declined seasonally. Cotton prices rallied since the last report, and cotton exports were up slightly. In contrast, corn and grain sorghum prices declined modestly over the reporting period. Grain exports were lower than expected.
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