U.S. Federal Reserve Beige Book: Dallas District (Text)

The following is the text of the Federal Reserve Board’s eleventh District--Dallas.


The Eleventh District economy expanded at a modest pace over the past six weeks. Reports on manufacturing activity remained mixed. Real estate and construction activity continued to improve. Retailers said holiday shopping boosted sales, and automobile dealers reported that sales were above year-ago levels. Staffing, accounting and legal services firms noted steady demand, while reports from transportation service firms were mixed, but improved overall. Energy activity remained at high levels despite a decline in the rig count, and financial firms reported modest growth in loan demand. Agricultural conditions remained dry. Prices were mostly stable, and wage pressures remained limited. Employment levels were steady to up. Many responding firms’ outlooks reflected fiscal uncertainty during the reporting period.


Most respondents noted stable prices, although accounting and legal services firms reported a modest rise in billing rates and some transportation service contacts noted an increase in freight charges. Overall, costs were flat to up during the reporting period. Some construction-related manufacturers and transportation service firms noted higher input costs. An aviation manufacturer said they planned to implement price increases this month due to rising input costs. Feed costs for livestock were at record high levels, while prices of other agricultural commodities declined slightly.

The price of WTI rose over $90 per barrel during the reporting period. Natural gas prices remained depressed. On-highway diesel and gasoline prices trended down, and prices of petrochemical products were mixed.

Labor Market

Employment held steady or increased at most responding firms. Reports of employment increases came from legal firms, auto dealers, and a few manufacturers. Retailers said employment was up from a year ago, and one contact reported difficulty in filling IT positions. Accounting firms reported hiring at a slower pace than the last report. Auto dealers noted difficulty finding qualified workers, and there were scattered reports of shortages of skilled workers at energy-related firms. Wage pressures remained largely subdued, although airlines reported upward pressure and some construction-related manufacturers reported plans to give cost of living adjustments in January.


Construction related manufacturers’ reports were mixed. Lumber producers noted stronger sales due to strong single-family construction, but demand for other products remained the same or softened since the last report. Outlooks were uncertain, with some responding firms putting off major decisions until the fiscal cliff was resolved. Demand for fabricated metals also softened over the reporting period, although outlooks for 2013 were optimistic. Primary metals producers noted demand growth was slower than expected.

Respondents in high-tech manufacturing said that production and orders were flat to slightly down. One respondent noted that the weak global economy was slowing demand across a broad array of information technology products. Contacts said customer inventories were lean, while producer inventories had increased slightly but remained near desired levels. Respondents’ outlooks for the next three to six months were more uncertain than at the time of the last report. Most said that they are planning for weakness to continue, and that they may reduce employment levels in 2013.

Demand for paper products was strong in the first part of the reporting period but stalled in recent weeks, in line with normal seasonal patterns. Contacts were more pessimistic in their outlooks, however, due to uncertainty regarding fiscal issues. Food demand increased due to a seasonal pickup, and the outlook was positive among contacts.

Overall, transportation manufacturing contacts said demand was mostly flat to up slightly. Automobile manufacturers said business was up, and outlooks were more optimistic. Demand for aviation equipment increased, but remained below year ago-levels.

Petrochemicals producers noted Gulf Coast chemical production was up compared with last year. Gulf Coast refineries were operating at rates above 90 percent, and margins remained healthy. Refiners said that despite sluggish domestic demand for distillates, strong export demand has kept inventories from building.

Retail Sales

Retail sales volumes increased since the last report, mainly due to holiday shopping, and contacts said demand was up year-over-year. According to two national retailers, Texas continued to outperform the nation. Contacts were cautiously optimistic in their outlook for 2013; the largest source of uncertainty among contacts was the fiscal cliff.

Reports on automobile sales were mixed over the past six weeks, but were generally positive. All contacts noted that demand was up from a year ago. Selling prices were unchanged since the last report, but manufacturers were offering many more incentives, making the final price to consumers lower. Uncertainty regarding fiscal issues, future taxes, and health care costs, has moderated firms’ outlooks.

Nonfinancial Services

Staffing services firms reported mixed results. Most said that demand held steady, while one said orders had softened slightly. Contacts continued to be very concerned about new health care laws in 2014, and some noted their customers’ outlooks were more uncertain due to fiscal concerns. Overall, staffing firms’ outlooks were slightly more pessimistic than six weeks ago.

Overall, accounting activity held steady with little growth; strong energy-related activity was the exception. Contacts expect modest growth in 2013. Legal firms reported steady demand. Transactions and wealth planning practices were reportedly the busiest they have ever been, energy-related activity remained strong, and real estate-related activity was better than expected. Responding firms remained optimistic in their outlooks.

Reports from transportation services were mixed. Intermodal cargo volumes edged down seasonally and have slowed from early 2012, but container volumes increased during the reporting period. Railroads said cargo volumes remained steady despite extremely strong growth in energy-related shipments. Grain and coal volumes remained weak spots during the reporting period, but auto shipments increased despite a strike at the Port of Los Angeles that disrupted the flow of containers. Shipping companies said that small parcel volumes posted very strong growth since the last report, particularly due to retail activity. Air cargo volumes were up slightly in preparation for the holiday season. Airline contacts said that passenger demand was soft over the past six weeks. Outlooks from transportation services firms continued to reflect global economic uncertainty, and most firms expect weak growth in the near-term.

Construction and Real Estate

Contacts in the single-family housing sector reported continued improvement in new and existing home sales. Despite increased construction activity housing inventories remain low, pushing overall prices up. Firms remain cautiously optimistic in their outlooks. Apartment demand continued to ease slightly overall, although occupancy rates remain historically high.

Demand for office and industrial space increased since the last report, according to contacts in the commercial real estate sector. Most firms expect to see an increase in nonresidential construction in 2013. Commercial property investment activity picked up slightly near year-end, and most respondents were fairly optimistic in their outlooks for 2013.

Financial Services

Financial institutions reported modest growth in overall lending activity. The increase in corporate loan demand was mostly driven by customers opting to make purchases before year-end due to tax uncertainty, but there was also moderate growth in real estate lending activity. Consumer lending improved, with modest growth in mortgage and new automobile loan demand. Loan pricing remained extremely competitive, and deposits continued to grow despite very low rates. Firms’ outlooks remained positive, with fiscal and regulatory concerns posing downside risks.


Respondents at energy-related service firms said activity remained at high levels, despite a larger-than-expected decline in the domestic rig count driven by low natural gas prices. Although oil prices remain at healthy enough levels to support current activity, price volatility is making some firms nervous about drilling in higher cost fields. Contacts expect overall activity to be flat this year relative to fourth quarter of 2012, with some improvement expected in the second half of 2013.


With little rainfall, most of the District remained in drought conditions since the last report. The drought is negatively impacting the winter wheat crop, and contacts are beginning to express concern for spring planting. Wheat harvest was mostly completed over the last six weeks, and production was up from 2011, mainly because the drought was less severe. Contacts noted that fiscal cliff concerns and the lack of a farm bill are creating a great deal of uncertainty.

SOURCE: Federal Reserve Board

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