Dallas Beige Book
September 4, 2013 · Dallas Beige Book Reports
The Eleventh District economy expanded at a moderate pace over the past six weeks. While many respondents noted steady demand, there were more noting improving versus declining demand. Sales grew for firms in residential construction, retail, accounting, fabricated metals, food and kindred products, and automobile dealerships. Financial firms and paper producers reported a decline in demand. The energy sector noted some flattening of activity at high levels. Drought continued to plague the region although recent rains have slightly improved growing conditions in some areas.
Most responding firms said that prices were stable since the last report. Contacts in oil, paper and beef production reported slight increases in prices while law firms and retailers noted slight price reductions. Fabricated metals producers and accounting firms said that increasing cost pressures may result in price increases in the coming months. Contacts in the residential housing sector noted that overall home prices in most major metros continued to rise at a moderate to fast pace. Energy prices were mixed, with natural gas prices holding steady and the price of West Texas Intermediate crude rising to an average of $104 per barrel over the past six weeks. Gasoline and diesel prices declined modestly.
Employment was flat to slightly higher at most responding firms with few reports of layoffs. Wage pressures remained subdued except in the case of a few professions such as information technology and engineering. Construction-related contacts noted some labor shortages, although there were no reports of wage pressures. Contacts in auto dealerships, primary metals, high-tech manufacturing and accounting firms said that employment was up slightly. Retailers reported flat employment growth, except in oil and gas producing areas where jobs continued to grow. Financial firms reported a slight decline in jobs.
Construction-related activity was mixed, according to respondents. Some contacts reported flat to slightly improved demand, although one contact noted strong demand from Houston infrastructure projects. Fabricated metals producers noted demand was up due to oil and gas activity and outlooks were positive. Primary metals producers said demand held steady, but outlooks were mixed, with some concern for the rest of the year.
Food producers said demand picked up since the last report and the pickup was above normal seasonal increases. Paper producers noted weak demand and uncertain outlooks.
Respondents in high-tech manufacturing said that growth in demand remained stable at a modest pace since the last report. Demand for tablets and cloud-related products continued to grow strongly while personal computer-demand remained weak.One contact noted a pickup in U.S. demand for communications infrastructure. Employment was reported as flat to slightly increasing. While overall wage pressures were modest, in some locations, such as Austin, respondents said that competition for skills such as electrical engineering was driving wages higher and causing employees to change jobs more frequently. Respondents remain cautiously optimistic about growth over the next six months with one respondent noting that growth has become more persistent in recent quarters
Retail sales picked up since the last report, spurred in part by back-to-school shopping. According to two national retailers, Texas sales continued to outperform the national average. Contacts' outlooks through the end of the year were positive.
Automobile sales picked up over the reporting period, and demand was up from year-ago levels. Inventories continued to vary by manufacturer. Selling prices remained stable, but contacts expect an increase with the new model year this fall. Contacts' outlooks for the rest of the quarter and the rest of the year were optimistic.
Staffing firms' reports were mixed, with one contact reporting near-record levels of direct hiring, especially in engineering and healthcare, and other contacts reporting declines in hiring in manufacturing and logistics. Outlooks were also mixed.
Legal firms reported modest growth in demand for services, a positive sign after mixed growth in the second quarter. There was a continued absence of transactions and litigation work--with the exception of robust intellectual property litigation demand. Rates were unchanged, and collections were good, although not as good as last year. Employment was roughly flat, with many partners moving laterally, but some firms were actively seeking experienced associates. A small number of summer clerks were offered jobs starting next summer. Associate compensation at large firms rose to match associate compensation at New York firms. The outlook is for modest hiring and growth over the next two months, with some recent growth in transactions work spurring more optimism
Accounting demand remained strong and exhibited growth across the board. Rates remained stable, and wages have increased or will increase moderately. Firms continued to hire, and headcounts were up. A San Antonio contact noted it was hard to find good, experienced candidates because of competition from other firms. The outlook is for a strong close to the quarter with robust backlogs for the next six months.
Transportation service firms noted that cargo volumes were mixed, with increases in railroad and container volumes, but flat air cargo and declining small parcel volumes. Rail volumes were boosted by robust growth in petroleum shipments.
Airline contacts said demand was seasonally down but bookings and yields were up year-over-year. Demand was strong over the summer and the outlook is quite optimistic compared to last year.
Construction and Real Estate
Single-family housing activity remained strong over the past six weeks according to contacts. Most responding firms noted that new home construction has increased in response to robust sales, especially in the Houston, Dallas and Austin metro areas. Some contacts expressed concern about the high level of multi-family construction in major Texas metros, but overall apartment occupancy rates improved since the last report. Contacts are mostly optimistic in their forecasts through year-end.
Office and industrial construction was reportedly rising, with several announced projects in the Dallas/Fort Worth and Houston areas. Overall, Texas commercial real estate markets continue to fare well compared to other parts of the U.S. Contacts noted moderate to strong growth in rental rates in most commercial real estate sectors as leasing activity has increased.
Financial institutions experienced a modest decline in loan activity and the level of loan demand was soft. Demand for real estate loans, especially in the San Antonio and Austin, areas was good, with the exception of weakness in multi-family real estate lending. Contacts reported loan quality was good and continued to improve and borrowers continued paying down debt. Loan pricing remained competitive. Deposit volumes remained strong and grew at a moderate pace, although slower than a year ago. Deposit rates were mostly unchanged, with increases on some long-term certificates of deposit. The outlook for financial institutions is for continued softness in lending; however, there is a good pipeline for loans, and there is hope for more mergers and acquisitions activity according to responding firms. The finalized Basel III regulations were a relief to community bankers.
Drilling activity was little changed at high levels. Global demand held steady. Respondents expect improvement in energy activity in the second half of the year, due in part to anticipated increases in rig activity and production from the Gulf of Mexico. The recent increase in oil prices has increased the cost advantage of domestic petrochemicals firms.
Drought conditions continued to affect most of the district, although the severity in several areas was eased by unusually good July rainfall. Farmers began harvesting row crops, and conditions were mostly fair to good. The cotton crop is expected to be smaller than previously anticipated, causing cotton prices to improve slightly. Feeder cattle prices rose over the reporting period because of tight supplies and lower feed costs.
Find the full Beige Book report at www.federalreserve.gov/monetarypolicy/beigebook/default.htm