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 generally expanded at a slightly stronger pace over the past six weeks than during the previous reporting period. Manufacturing activity increased somewhat overall, with stronger reports from metals and petrochemical producers. However, retail sales were flat after rising in the previous six weeks, and auto sales softened slightly. Nonfinancial services firms noted a continued rise in activity, and demand for accounting services grew at a stronger pace. The housing sector continued to improve, with a rise in new construction. Office and industrial leasing activity remained strong. Financial institutions noted growth in loan demand was stronger than six weeks ago, and energy activity remained at high levels. Drought continued to dampen the agricultural sector. Prices held steady at most Eleventh District reporting firms, and employment levels were flat overall with scattered reports of hiring.


Most responding firms said prices were stable, although there were some reports of increases. Airline ticket prices rose slightly because of summer demand, and transportation service firms expect shipping rates to increase due to a recent upturn in jet fuel prices. Home prices rose rapidly as demand continued to outstrip supply. Financial institutions reported a notable rise in mortgage rates. Accounting contacts said billing rates stabilized after earlier increases were successfully implemented. Retail prices were unchanged since the last report.

Oil prices rose slightly over the reporting period. Natural gas prices fell below $4 per mcf. Gasoline prices edged down and diesel prices increased.

Labor Market

Employment held steady at most responding firms, although there were more reports of hiring than at the time of the last report. Nominal employment increases were reported by retailers, and hiring was noted by some primary metals and cement manufacturers. Accounting and legal firms continued to add workers in selected business areas. A railroad contact reported employment growth, but the hiring was concentrated outside the Eleventh District. Difficulty finding qualified workers became more widespread, with scattered reports among accounting, finance, single-family construction, auto sales, and primary metals manufacturing firms, as well as from retailers in the Eagle Ford Shale area.

Wage pressures remained mostly subdued, although increased compensation was reported in accounting and legal services.


Manufacturing activity improved slightly over the reporting period. Construction-related manufacturers said demand was flat or up, and a cement producer noted very strong demand from residential construction, allowing the company to choose which projects to take on. Outlooks were more optimistic than in prior periods. Primary metals manufacturers said demand held steady at strong levels, although there wasn’t much enthusiasm regarding the remainder of the year. An exception was commercial construction-related demand, which is expected to pick up. Fabricated metals firms noted improved demand and positive outlooks.

High tech orders and production were flat to slightly up since the last report. Semiconductor manufacturers reported some improvement in demand for memory equipment but weakness for logic devices. Demand is expected to be flat in the second half of the year, although there was increased concern that orders may weaken.

Paper manufacturers said demand was less volatile than earlier in the year, and business is expected to stay roughly at current levels in the near-term. Food producers said demand held steady and outlooks remained positive.

Transportation manufacturing contacts reported steady or slightly increased demand, with business generally improved from a year ago. Most firms expect strong demand through year end.

Petrochemical producers noted some pickup in activity since the last report, although most markets were stable. Contacts remained positive in their domestic outlooks, but global weakness was weighing on the overall picture. Refiners said operating rates and margins were up over the reporting period.

Retail Sales

Retail sales volumes held steady over the reporting period and were up from a year ago. Outlooks for the rest of the year were positive, with growth expected to continue at about the same pace as in the first half.

Automobile sales were slightly softer than six weeks ago but remained strong. Demand was up year over year. Selling prices held steady at very competitive levels over the reporting period. Outlooks for the third quarter were optimistic, and contacts expect the rest of 2013 to be strong. However, there was continued concern about rising costs, particularly from the Affordable Care Act.

Nonfinancial Services

Most nonfinancial services firms noted increased demand since the last report, although staffing services contacts offered mixed reports: high-level IT workers and engineering project managers were in high demand, while demand weakened for lower-skilled positions. One staffing services firm saw more placements at the end of the quarter than usual. Accounting firms reported a strong increase in demand since the last Beige Book, led by transactions work. There was a good backlog of work, so contacts are expecting a strong third quarter. Legal firms noted modest demand growth, but work was down year-over-year on a per-lawyer basis. Real estate work continued to rise, although lawyers became somewhat concerned about interest rate risk. Contacts noted a lack of litigation work, and demand for energy work experienced a little softness although it remained strong. Firms expect to see improvement on a year-over-year basis in the fourth quarter.

Transportation service firms said cargo and container volumes increased over the reporting period, except for air cargo, which held steady. Railroad contacts reported a slight increase in overall volumes, with notable increases in motor vehicles and crushed stone. Container volumes were up strongly in May, and retail trade continued to lead the growth in small parcel shipments, which increased in May for the third consecutive month. Outlooks were generally less positive than at the time of the last report.

Airline contacts noted a seasonal increase in passenger demand over the past six weeks, with demand roughly in line with year-ago levels. Firms expect demand to slow as the leisure travel period ends. One contact expects 2013 to be about the same or slightly better than 2012, while another has an uncertain outlook.

Construction and Real Estate

Activity in the housing sector continued to grow at a strong pace over the reporting period. Single-family home sales continued to outpace supply, leading to very low inventories and rapid price increases. Building activity picked up but was not yet able to meet demand in the major metro areas. Slightly higher mortgage rates are not expected to derail demand, according to most contacts. Apartment demand remained at high levels. Apartment construction rose in the major metros, where occupancies were above 90 percent.

Leasing activity for office and industrial space was strong over the past six weeks, particularly in Houston and Dallas. Construction activity picked up in both Houston and Dallas, with numerous office and industrial projects underway. Contacts noted that the recent increase in interest rates has caused concern in the commercial investment markets, although the impact has been minimal so far.

Financial Services

Financial institutions experienced moderate growth in loan demand. Commercial real estate and transactions lending increased solidly, especially in oil and gas areas around the Eagle Ford Shale and West Texas. Demand for auto loans grew strongly. Loan quality was good and continued to improve, and borrowers were still paying down debt rapidly. Loan pricing remained extremely competitive, and community banks were often outbid by regional banks. Mortgage rates rose in June. Deposits and deposit rates were flat to slightly down. The outlook for loan demand is optimistic, with a robust pipeline for mortgages.


Energy activity was little changed at high levels. Global demand held steady, although there was some weakness from Mexico and Canada. 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.


Much of the Eleventh District remained in severe drought, with conditions little changed from the last reporting period. Row crop farmers completed planting, and crop conditions were mostly fair to good, according to respondents. The wheat harvest continued, but production was sharply reduced as a very large share of the acres planted was abandoned because of drought and freeze damage. Livestock feedlots and meat processors continued to suffer greatly from high feed costs and a shrinking cattle herd.

SOURCE: Federal Reserve Board

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