The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed June 16, 1999

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

In May and the first week of June, the Eleventh District economy continued to expand at roughly the same pace reported in March and April. Most business service firms continued to report strong activity, and retailers said sales growth was still strong. Construction activity and concerns about overbuilding were up slightly over the past six weeks, however. Contacts at manufacturing firms and financial institutions reported little change in activity. Energy activity has not increased with higher oil prices, according to contacts, although optimism is picking up. Agricultural conditions have been mostly favorable.

Prices
Over the last six weeks, there were more reports of price increases than price declines. High levels of construction have led to very high land prices, according to contacts, and shortages of bricklayers, framing labor and building materials, such as lumber. Drywall is being allocated to contractors based on the amount they purchased last year, and prices surged as much as 30 percent following the Oklahoma tornadoes. Higher building costs and strong demand have pushed new home prices up 5 percent to 7 percent over the past year. Shortages of labor and inputs have also caused new home construction to be delayed by one to three months, and some contacts say the quality of construction has been allowed to decline to help builders offset the rising cost of inputs. In the service sector, contacts say hiring remains difficult, and wages are up for truckers, secretaries, legal assistants and workers with technical skills. Service firms reported less resistance to fee increases in May and early June, than in the six weeks prior, particularly at legal and temporary firms. Some retailers said smaller markdowns resulted in a slight increase in final selling prices over the last six weeks. Some of the retailers who benefitted from falling prices for Asian products say those prices are expected to increase slightly over the next six months. In May, prices were up for ethylene-based petrochemicals, as already low inventories of ethylene were drawn down following planned and unplanned outages in April and May. Prices for these chemicals are not expected to fall until inventories are rebuilt, which contacts believe will take much of the rest of the year. Heavy inventories of ethanol, styrene and polystyrene are keeping other petrochemical prices from increasing even though feedstock costs, such as oil and natural gas, have risen. Stiff competition and dealer incentives are driving down retail prices for new cars. This is putting downward pressure on used car prices, which have fallen for the last four months.

Manufacturing
Manufacturing activity remained at roughly the same level as reported in the last beige book. Demand remains very strong for construction-related manufactured products, such as cement, brick, lumber and metals. Demand for aluminum surged over the last month, which one contact suggested may be because customers were stocking up in anticipation of price increases. Sales continued to be strong for electronic and communications equipment. Producers of corrugated boxes also reported that sales were still strong, but demand for printing paper was weaker than three months ago. Refiners say profit margins fell over the past couple of weeks, as refineries moved production into high gear and inventories filled up. Refineries along the Texas and Louisiana Gulf Coast have operated at 100 to 105 percent of rated capacity over the past six weeks. Apparel manufacturing activity remained mixed, with demand increasing only for those who do not face significant import competition.

Services
Most business service firms continued to report strong activity over the past six weeks. Demand for telecommunications, legal and temporary services were still strong, and temporary firms said demand for their services from the manufacturing sector was up slightly. Demand for shipping services was weaker than reported in the last beige book, according to contacts. Trucking companies reported slower demand growth than over the past couple of years, and rail cargo volume was down. A large rail firm announced plans for layoffs and a reduction in orders for capital equipment. A contact suggests this might induce similar announcements from other rail companies in the future.

Retail Sales
Retailers said sales growth continued to be strong in May. Sales were very strong in most of the region's major metropolitan areas, with some stores posting double-digit increases in the Dallas-Fort Worth Metroplex. Some retailers reported flat sales growth in Houston, however, and the region's rural markets did not do well, according to contacts. Auto dealers said demand was still strong in May, particularly for sports-utility-vehicles and trucks.

Financial Services
Contacts at financial institutions report little change in activity, with continued strong lending, and "good" business conditions and profits. Contacts say consumer lending continues to fare the best, with solid margins. According to bankers, competition for commercial lending remains intense. Lending in rural areas continues to be slow because of weak agricultural markets.

Construction and Real Estate
Construction activity increased slightly over the past six weeks, fueled by strong home sales, retail construction and "booming" school construction. Shortages of labor and materials, particularly residential and commercial drywall, are still restraining building activity. New home sales, starts and traffic through model homes were up from last year. Existing home sales continued to surge, with homes selling quickly; some before they are listed. Hotel construction has slowed, however, which pleases contacts who say the hotel market is overbuilt. Heavy supplies and slow business travel have pushed down hotel occupancy rates. Commercial real estate activity remains slow. Demand for office space is still "good," but one contact summarized the overbuilding concerns of many by saying "we're holding our breath," noting that anything that hasn't been started is being reevaluated. Another contact said sales of office buildings have slowed and expressed uncertainty about future prices. Contacts say small office and industrial buildings are in short supply, however.

Energy
Energy activity has not increased with higher oil prices, although there is increased optimism about the second half of this year because producers expect the number of wells being drilled to increase. Some producers believe there is the potential for a big bounce back in drilling activity, since drilling programs are running behind the plans made early in the year, before oil prices rebounded. Still, all contacts qualified any optimism by saying that oil prices will come down as fast as they went up if OPEC does not hold together.

Agriculture
Favorable weather conditions aided crop development, planting and harvesting activities in most areas in May. Still, low price forecasts for most crops continues to dampened some of the enthusiasm for planting, particularly cotton. Range and livestock conditions were good.

Return to topReturn to top

Previous Kansas City San Francisco Next


Home | Monetary Policy | 1999 calendar
Accessibility
To comment on this site, please fill out our feedback form.
Last update: June 16, 1999