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Federal Reserve Districts


Eleventh District - Dallas

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Summary

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Full report

Over the past six weeks, Eleventh District economic activity expanded at about the same modest pace reported in the last Beige Book. Oil service and machinery contacts reported further slowing. Agricultural conditions have deteriorated due to the drought. Manufacturing activity grew at the same pace as reported in the last Beige Book. Demand for business services continued to increase overall, with few contacts reporting slowing sales growth. Credit quality and consumer borrowing increased slightly. Retailers reported continued strong sales growth. Real estate and construction activity continued to expand at a brisk pace.

Prices
Most prices were unchanged or lower. Notable exceptions were those for real estate and some construction materials. Apartment rents and home prices continued to rise, but increases in office rents slowed. Prices also rose for electricity, industrial motors, specialized apparel and business services. Prices were unchanged for most apparel, crude oil, heating oil, natural gas, retail gasoline, plastic resins, steel, cement bricks, air and surface cargo and food. Prices declined for lumber, telecommunications equipment, liner board, semiconductors, memory chips, electronic components, wholesale gasoline, rig rates, base petrochemicals, and aluminum. Lower prices for Asian goods were reported as keeping retail prices down.

More contacts reported that labor shortages were leading to rising wages. Wages increased for workers in telecommunications manufacturing, truck and air transport, and business services, and for skilled workers in general. Business service respondents said that the rising wages were putting pressure on profits. Wages in the apparel, paper, food and lumber industries were unchanged, but contacts reported upward pressure in non-border areas.

Manufacturing
Manufacturing activity grew at the same pace as reported in the last Beige Book. Sales of lumber, some metals, electronic components, semiconductors, DRAM chips, chemicals and heating oil were down. Contacts reported that weak Asian demand had contributed to increased domestic supplies of lumber, aluminum, and chemicals. Electronics manufacturers reported weak sales due to the GM strike and slower oil and gas exploration activity. Despite the increased demand from the summer driving season, high refinery production levels kept gasoline inventories high and put downward pressure on refiners' margins. Contacts reported stable sales of boxes, food and concrete, but one box manufacturer said Christmas shipping of boxes started a month later than the usual May start. Sales of telecommunications equipment, some specialized semiconductors, apparel, brick, and gasoline were up. Telecommunications equipment contacts were starting to see their sales pick up with resumed investment following the MCI-Worldcom merger.

Services
Demand for business services continued to rise, fueled by initial public offerings, mergers, takeovers, and work for manufacturing businesses near the border. Some business service contacts reported lower sales due to the drought, the GM strike and weakness in the semiconductor industry. Temporary staffing contacts reported the tight labor market resulted in more unfilled orders and lower than expected sales. Transportation services contacts reported loads increased strongly for passenger airlines, moderately for trucking companies and slightly for air cargo shippers. For the rail industry, increased coal shipments offset smaller grain shipments caused by the drought and weak Asian demand for grain.

Retail Sales
Retailers reported continued strong growth in sales, except for sporting goods. Contacts expect sales to remain strong�but with downward price pressure from Asian imports. One retailer said that wholesale prices in the spring of 1999 could be 2 percent to 3 percent lower than this year. Auto dealers reported increased sales compared to a year earlier.

Financial Services
Credit quality and consumer borrowing increased slightly, and several contacts reported declining loan delinquency and writeoffs. Demand for home and auto loans continued to increase. Increased building and commercial activity offset some of the drought-induced weakness in lending by rural institutions. Contacts reported competition continued to hold down interest rates on commercial loans.

Construction and Real Estate
Real estate and construction activity continued to expand at a brisk pace over the past six weeks. Home construction "exploded," nearing record levels, in part due to delayed starts earlier in the year. One contact expected the low inventories of new and existing homes to contribute to continued strength in home building. Other contacts were concerned that there may be too much new construction in the office and multifamily markets. Preleasing of office buildings under construction fell. Contacts expected apartment construction over the next year to outpace absorption, leading to a slight decline in the currently strong occupancy rates.

Energy
Contacts reported continued slowing in both gas and oil drilling. Over the past several weeks, the U.S. rig count fell from 860 to 810 and was down from a recent peak of 1019 in December. Continued weakness in onshore drilling and recent reductions in exploration in the Gulf of Mexico led to lowered rig day-rates and some layoffs. Although the hot weather translated into strong demand for natural gas by electric utilities, natural gas inventories remained at least 25% above year-earlier levels.

Agriculture
Agricultural conditions deteriorated as extremely hot temperatures stressed crops and livestock. Most areas remained very dry, despite some scattered rainfall. While irrigated crops were doing well, water use was high. Some crops have been damaged by grasshoppers. Water rationing impaired production in South Texas. Range and pasture conditions continued to decline.

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Last update: August 5, 1998