The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed July 27, 2011

Federal Reserve Districts


Eleventh District--Dallas

Skip to content
Summary

Districts
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

Full report

The Eleventh District economy expanded at a moderate pace over the past six weeks. Energy-related activity remained strong. Reports from manufacturers were mixed but mostly positive, although some construction-related producers were less optimistic than they were six weeks ago. Nonfinancial services activity rose, with strong demand for staffing services. The single-family housing sector remained weak, but the commercial real estate sector continued to improve. Financial services respondents said overall loan demand was flat during the reporting period, and contacts in the agricultural sector noted drought conditions worsened.

Prices
Selling prices were flat or higher since the last report. Most manufacturers said selling prices were stable, while several service sector companies were able to enact some price increases, including transportation and retail firms. These price increases were in response to higher input prices. Accounting, legal and staffing firms reported slight increases in rates charged for their services. Input prices increased at most responding firms, although several contacts said upward pressure from higher energy costs eased in recent weeks as oil prices declined. Transportation firms, including airlines, noted that the recent price declines for fuel will have a larger impact on input costs later in July and August. Retailers said cost pressures were squeezing margins, and food manufacturers said commodity prices were up significantly from last year.

The price of crude oil fell from over $100 per barrel in early June to about $95 at the end of the reporting period in early July. Gasoline prices fell about 15 cents during the reporting period. Natural gas prices remained in the $4-$5 per Mcf range, but edged up since the last report because of hot weather. Prices for most petrochemical products fell since the last report, according to contacts.

Labor Market
Employment levels held steady at most responding firms, although there were several reports of hiring. Staffing firms reported continued strong demand for their services. In addition, there were some mentions of moderate employment increases from automobile dealers, transportation service firms and manufacturers of primary and fabricated metals, transportation equipment, lumber and food. Legal firms noted solid demand for talented attorneys, and added that start dates for some new hires had been moved up from January 2012 to fall 2011. In contrast, one construction-related manufacturer reported a new round of layoffs, and one retail firm was considering reducing staff levels next year. Wage pressures remained minimal, although some contacts noted that they were giving modest pay raises.

Manufacturing
Reports from construction-related manufacturers were mixed. Overall, activity levels appeared to be unchanged. Multifamily activity provided a boost to some firms, although several contacts said public and government demand had diminished. In particular though, fabricated metals producers noted a pick-up in growth since the last report due to infrastructure projects. Construction-related outlooks were generally flat to slightly up, and contacts believe there will not be much rebound until residential and commercial construction recover, which may take longer than previously expected.

Respondents in high-tech manufacturing reported that growth in orders remained at a moderate pace since the last Beige Book. One respondent with greater-exposure-than-average to Japanese production said second-quarter sales were well below pre-earthquake expectations, but that growth in June was strong enough to finish the quarter slightly above their expectations. Inventories were at desired levels, although one respondent said that a one-time reduction in orders from a customer left them with slightly higher-than-desired levels. Most contacts expect orders and sales growth to remain moderate or to pick up slightly in the second half of the year.

Reports from paper manufacturers were mixed. Demand for corrugated packaging improved, but paper suppliers noted flat to slightly slower sales. Manufacturers of non-defense transportation equipment reported strong sales with demand flat to slightly up since the last report and well above year-ago levels. Food producers said sales continued to rise at a steady pace.

Petrochemical producers said demand remained strong for most products. Contacts said domestic demand has improved, and export markets have re-opened since the last report. Refinery utilization moved up to near 90 percent, and contacts in the refining industry said margins narrowed slightly but remained very strong, although demand for oil products is slightly lower than the same time last year.

Retail Sales
Retailers reported a slight increase in activity over the reporting period. Compared to a year ago, same store sales are up in the mid-to-low single digits. Apparel and jewelry are segments that have performed well recently. Concerns remain regarding the elevated level of unemployment. Texas sales increased slightly more than the nation on average, according to one large retailer. The second half of the year should see modest year-over-year growth. Automobile demand remains strong, but supply constraints stemming from Japan are limiting sales. Japanese manufacturers are primarily affected, but inventories of domestic autos are below desired levels as well. This is expected to last for another 90 days or less before improving through year-end.

Non-financial Services
Staffing firms reported continued strong demand for their services. Temp-to-hire activity has been a bright spot, with long assignment lengths and several conversions to permanent hires. Outlooks are cautiously optimistic, with most respondents expecting continued strength in demand through year-end. Accounting firms noted a seasonal slowdown in demand for their services. Legal firms reported mostly steady demand, with continued growth in transactional services.

Intermodal cargo volumes increased since the last report, but year-over-year volumes are down due to a sharp decline in Asian demand for raw materials. Contacts in railroad transportation noted a broad-based increase in shipments, with particularly strong volume growth in metallic and nonmetallic ores and grains. Container volumes declined during the reporting period, although contacts said demand has strengthened from a year ago, due to energy-related activity. Small parcel shipments rebounded in June after declining in May. Still, outlooks are more pessimistic than previously reported, partly due to high fuel costs dampening consumer spending. Airlines report some softening in demand in June compared with May, likely due to an increase in airfares for last-minute travel. However, passenger volumes are up on a year-over-year basis, and the outlook for the summer is positive.

Financial Services
Financial firms reported relatively flat loan demand. National banks reported less pickup in corporate loan demand following a very active first half of the year, while commercial real estate (CRE) activity has continued its trend of improvement. Regional banks noted that loan demand has been mixed, while loan pricing remains aggressive amidst a highly competitive lending landscape. Outlooks are generally positive in light of better outstanding loan quality and continued gradual improvement in lending conditions. Optimism has been tempered by consumer fear regarding economic and fiscal policy uncertainty as well as the burden and costs associated with the implementation of new regulations.

Construction and Real Estate
Single-family home sales remain weak, particularly in the lower priced segment of the market. Contacts say demand is choppy from month to month, but most expect some improvement in the second half of the year.

Apartment demand remains strong and rents continue to increase. Contacts noted the Dallas/Fort Worth area topped the national rankings in leasing activity in the second quarter.

Office and industrial real estate activity improved since the last report. Contacts say Texas markets are performing better than the national average overall. One respondent noted office demand was quite strong in Texas' major metros and that rents were starting to rise. Investment property sales continued to improve from low levels, and prices rose slightly.

Energy
Domestic drilling activity remained strong since the last report, according to Eleventh District firms in the energy industry. The rig count continues to shift towards oil-directed drilling, and contacts noted horizontal drilling and fracturing activity remain very profitable. In the Gulf of Mexico, 15 rigs have been re-permitted--with seven currently working and near completion--although a lack of new permits this year has led to some concerns about the prospects for Gulf work later in the year. International activity remains strong, but profit margins are thin.

Agriculture
Drought conditions worsened, with about three-quarters of the district now in the most severe drought classification. Most Texas counties were designated natural disaster areas in June because they lost at least 30 percent of crops and pasture to drought. President Obama signed a disaster declaration in July for 45 counties in Texas that were heavily impacted by wildfires, which allows federal aid to help with recovery efforts. Crop conditions continued to deteriorate, causing low yields and complete crop losses in some instances. Farmers will depend heavily on crop insurance payments this year. Ranchers continued to cull herds due to very poor grazing conditions, limited hay supply and costly supplemental feeding.

Return to topReturn to top

Previous Kansas City San Francisco Next


Home | Monetary Policy | 2011 calendar
Accessibility | Contact Us
Last update: July 27, 2011