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Federal Reserve Districts

Eleventh District - Dallas

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In September and early October, Eleventh District economic activity expanded at about the same pace as reported in the last beige book. Manufacturing activity accelerated slightly, and demand for oil services continued to increase at a slower pace than drilling activity. Demand for services was steady and strong, while credit conditions, deposit growth and demand for loans were stable. Retailers reported that sales growth was slightly slower but still strong. Construction activity was slightly slower, and drought caused increasing problems for agricultural producers.

Prices of labor, services and a few goods rose, but most other prices were steady or down. Contacts across many industries reported difficulty finding and keeping workers. Retailers reported that entry-level turnover was 200 to 300 percent a year. A trucking firm reported that some trucks are standing idle because labor is so scarce. As a result, wages rose in many service industries, such as retail and auto sales, business services and trucking and air transportation. However, only a couple of goods-producers increased wages (by 5 to 20 percent.) Prices of memory chips rose 25 percent from a few months ago. Petrochemical prices increased, but contacts expected a decline in coming months with increases in production capacity. Aluminum prices rose 2 to 3 percent, and business service contacts encountered less resistance to fee increases. Prices of clay, fabricated metal, apparel, paper and food products, office space and transportation services were steady. Prices of oil, gasoline and natural gas fluctuated over the past six weeks, but returned to about the same levels as reported in the last beige book. Retail prices were slightly lower, and telecommunications equipment and services prices continued to fall. Prices of lumber and wood products fell 4 to 5 percent over the past three months, and timber prices also fell seasonally. Cement prices fell by as much as 12 percent in some locations.

Manufacturing activity accelerated slightly in the past six weeks. Semiconductor sales growth picked up slightly, in part due to increased sales of wireless phones and the usage of more chips in each phone. Contacts reported that memory chip production from Taiwan was back on line following the September earthquake, but users of memory chips have increased their inventories in case of further supply disruptions. Sales of food products, finishing woods and apparel rose. Sales of some petrochemicals rose with improved demand in Asia. Demand for timber and lumber was steady, but stronger than last year, in which firms saw declines associated with the Asia crisis. Sales of primary and fabricated metals, boxes and packaging materials were unchanged. Sales of concrete declined in a couple of areas but were stable elsewhere, and contacts reported that cement inventories were too big. Sales of clay products were steady, with the exception of brick sales, which weakened due to softer home sales and backlogs in brick production.

Demand for services was steady and strong since the last beige book. Temporary services contacts reported continued increases in demand for temporary workers for the energy sector, continued strong demand for workers with high-tech skills and steady demand for manufacturing workers following an increase in the summer months. However, growth in customer service and IT-related jobs slowed as Y2K-preparation work was completed. Legal and accounting contacts reported strong and steady activity, boosted by transactions, utility deregulation and construction of government and school buildings. However, trial work has been depressed recently. Railroad cargo volumes were up over the past month, and trucking activity was steady and strong but weaker compared to early this year. Passenger airlines reported that while earnings were hurt by the hurricanes, demand remained strong.

Retail Sales
Retailers reported weaker sales growth in the first half of October than in September. Several retailers said that, despite this softening, sales were still strong. While no inventory problems were reported, a few said that October sales were below projections and one contact worried that inventories might swell if sales growth continued to decelerate. Contacts said they expect good sales growth through Christmas. Auto sales remained at very high levels.

Financial Services
Credit conditions, deposit growth and demand for loans were stable over the past six weeks. While higher interest rates dampened lending growth, contacts reported that auto, real estate and home equity lending remained at high levels. A contact in the securitization industry said some major financing companies will cut office financing from November through January because of their expectations that Y2K-related uncertainty could cause interest-rate gyrations which they want to avoid.

Construction and Real Estate
Construction activity was slightly slower in recent months, with fewer commercial projects being started. In some areas, builders reported that shortages of labor and materials, and backlogs of unbuilt homes had subsided somewhat. New home sales slowed but remained strong over the past few months, as higher mortgage rates dampened demand. Contacts reported that this softening in home sales may have boosted absorption of multifamily units. However, completions of new apartments are expected to outpace demand over the next year, leading to a slight decline in occupancy rates. New office construction has outpaced absorption in Houston and Dallas, lowering occupancy rates a bit.

The domestic rig count rose 7.5 percent over the past six weeks, but the increase in demand for oil services was not as great, as the new drilling remained onshore, shallow and gas-directed. Offshore and international oil services work continued to decline slightly. This lack of response to higher oil prices was attributed to several factors: expectations that price gains were temporary, mergers that drew resources away from other investment, and the inability of some independents to obtain financing after they violated their loan covenants during the most recent period of low oil prices.

Drought is a growing problem for agricultural producers. Harvesting continued, but land preparation slowed due to a lack of moisture. Most pastures had limited forage for livestock, and supplemental feeding and herd reduction continued in most areas.

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Last update: November 3, 1999