Eleventh District Beige Book

Summary of economic activity

The Eleventh District economy continued to expand moderately over the reporting period. Nonfinancial services activity grew while retail sales were flat, and manufacturing activity was rather volatile. Lending picked up notably and commercial real estate activity improved slightly, though housing demand was tepid. Oilfield activity edged up. Employment held steady, and little change was seen in wage and price growth. Contacts noted sharply higher uncertainty around the outlook, with a wait-and-see stance echoed widely. Reduced labor supply as a result of stricter immigration policy, increased costs from tariffs, and decreased government spending were cited as headwinds for economic activity, while potential deregulation and corporate tax cuts were seen as tailwinds.

Labor markets

Employment was fairly flat over the reporting period, though there were scattered reports of hiring for skilled positions, including in the energy sector. A couple of manufacturers said they expect forthcoming layoffs as a part of cost containment. A tech contact said that employment in the industry is expected to grow more this year than the modest pace experienced last year, driven by emerging technologies like AI.

Some contacts noted the labor market has loosened, with a low number of open positions and many companies hiring for replacement only or implementing a hiring freeze. However, chronic worker shortages continued for healthcare professionals. There was concern over labor availability in industries highly reliant on immigrant labor, including construction, manufacturing, energy, and hospitality. Some contacts noted an increased usage of automation and AI in some instances, in an attempt to offset labor shortages. Others plan to increase worker utilization and cross training. Wage growth abated slightly overall.

Prices

Prices continued to increase at a moderate pace over the past six weeks, though a pickup in growth was seen in manufacturing raw material prices and in retail selling prices. Several contacts noted rising costs for insurance and rent, while lower fuel costs have eased some price pressure for transportation firms. Healthcare costs are expected to increase more this year than last year, according to contacts. Numerous business leaders expressed heightened concern over inflation, largely stemming from expected pass through of increased tariffs.

Manufacturing

Manufacturing activity grew notably in January then declined in February. Recent production weakness spanned both durable and nondurable goods. Demand was similarly volatile over the reporting period, with growth seen in most types of durable goods while a sharp decline was seen in food manufacturing. Gulf Coast refineries said volumes of processed crude oil pushed to post-pandemic highs as refining capacity has expanded. However, refineries and petrochemical producers noted tariffs remained an outlook concern—a sentiment echoed by manufacturing contacts more broadly. Respondents said the back-and-forth tariff talk has been stressful and that the heightened uncertainty is highly disruptive.

Retail sales

Retail sales were fairly flat over the reporting period. Rising growth in sales of nondurable consumer products was offset by declines in durables like autos and building materials. Auto dealers said affordability remains the primary challenge for sales, as consumers contend with inflationary pressures on vehicles in combination with lingering high interest rates. Overall retail outlooks were largely unchanged, and contacts say it is too soon to know the impacts of the Administration's many initiatives. Auto dealers in particular voiced concern over adverse impacts from trade and immigration policy changes.

Nonfinancial services

Nonfinancial services activity continued to grow moderately in January and February. Revenue growth was led by professional and business services. Staffing firms said demand has risen, for direct hires as well as temporary workers. Transportation services firms reported increased cargo volumes, with one contact citing shipping ahead of potential tariffs as a driver. Airlines report continued strength in demand. Growth abated in leisure and hospitality after exhibiting strength in fourth quarter 2024. Overall, outlooks were fairly stable though there were pockets of increased optimism. A transportation contact expects import volumes to decline this year due to tariffs. Uncertainty spiked, and some contacts say it is impacting their ability to operate with confidence and take risks.

Construction and real estate

Housing demand was tepid during the reporting period. Home sales were seasonally slow, and high mortgage rates continued to negatively impact activity. Incentives on new homes remained widespread, exceeding normal levels. Contacts said the high cost of incentives, particularly mortgage buydowns, were squeezing margins. Outlooks were weak, weighed down by elevated mortgage rates and concerns regarding the potential adverse impact of immigration and trade policy changes on labor supply and construction costs.

Commercial real estate activity improved slightly. Apartment demand was stable, but rents were flat to down and the construction pipeline is expected to recede this year. Office absorption picked up in some markets though vacancy rates remained elevated. Industrial demand was solid but has moderated from its recent highs.

Financial services

Loan volume continued increasing at a rapid pace in February while loan demand accelerated further. Credit tightening continued, while loan pricing declined. Loan nonperformance rose across all loan types, while growth in general business activity slowed. Bankers' outlooks remained optimistic but have moderated. They cited net interest margin, liquidity, and cybersecurity as top outlook concerns. Contacts expect improvement in loan demand and business activity over the next six months, but also a notable uptick in loan nonperformance.

Energy

Oilfield activity picked up slightly over the reporting period. Contacts expect slightly fewer wells drilled this year but an increase in overall production due to rising well productivity. They reported that capital spending plans for 2025 are largely unchanged from last year. Tariffs constitute the largest price risk to the oilfield, though contacts noted that the impact would likely be insufficient to affect capital investment plans. A couple of contacts credited significant expansions in Texas' battery storage capacity for the improved performance of the state's power grid during January's winter storm compared with past storms.

Agriculture

Drought conditions were largely contained to the southwest parts of the District, while most other areas had adequate soil moisture. Most crop prices remained at largely sub-profitable levels, though grain prices moved up over the reporting period. Corn prices rose to a value that is profitable for most Texas farmers, assuming the weather cooperates. Overall, most contacts expect favorable growing conditions this spring. Cattle prices rose further to record highs, driven by solid demand and ebbing supply. Egg prices have increased sharply as the outbreak of avian influenza continues to impact egg farms across the U.S.

Community perspectives

Nonprofit service providers reported a sustained high level of demand, especially for rent assistance and household staples. Workforce development agencies noted wages in lower-skilled roles are not keeping up with inflation, causing financial strain for many households and increasing demand for childcare assistance beyond the available level, resulting in growing waitlists. Some nonprofit organizations reported cutting budgets, beginning layoffs, and making strategic pivots to sustain operations amidst federal funding disruptions. Funding cuts have had a direct impact on newly resettled refugees, as their 90 days of support services have been affected, including assistance with housing, food, healthcare and job placement. Social service organizations also observed a steep decline in service utilization over the past month from foreign-born clients, some of whom are undocumented, and said many are skipping work and missing healthcare appointments or even school out of fear of deportation.