The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed May 7, 1997

Federal Reserve Districts

Eleventh District - Dallas

Skip to content

New York
St. Louis
Kansas City
San Francisco

Full report

Eleventh District economic activity continued to expand at a moderate pace in March and April. Many industries reported trouble finding workers, which pushed up wages and prices at some companies. Demand continued to be strong for all contacts in business services, and construction activity was slightly higher. Energy industry activity remained strong despite lower crude and product prices. Manufacturing orders were softer than reported in January and February, however, and retailers said sales growth was slower since the last beige book. Demand remained flat for financial services, except for an increase in business loans. Agricultural conditions have improved overall.

All contacts in the service sector said they have been hiring and having difficulty finding qualified workers, which has led to higher wages and fees. The tight labor market extends to all types of service workers. For example, in Dallas, a pizza delivery service is offering a $200 signing bonus and "big discounts on pizzas" for qualified drivers and managers. The oil industry also continued to report a tight labor market. Most manufacturers did not report labor shortages or wage pressures. Of notable exception were computer-related manufacturers, who said that labor shortages had led to rising wages in the Dallas area, but they have been unable to pass this cost increase on to selling prices. Higher labor costs from past and future increases in the minimum wage are a concern to apparel manufacturers and some retailers because stiff competition continues to prevent them from passing cost increases along to selling prices. Retailers reported that a very competitive market is keeping selling prices unchanged, despite some hope earlier in the year that they would be able to increase some prices. Excess capacity and a drop in demand led to lower selling prices for all types of paper products. Most construction-related manufacturers reported no change in selling prices, despite previous plans for prices increases in the spring. Selling prices were higher for some lumber and wood products, however. A few construction-related manufacturers said their inventories are excessive, particularly for cement. Warm winter weather eased inventory problems at refineries and reduced fears of heating oil shortages. Gasoline inventories are low, but contacts say supplies should be adequate for the summer months, and prices are expected to be slightly lower than last year. Even though their costs have been falling, producers of a number of plastic products tried to raise prices in March, but the price increases were effective only for some polyethylene plastics.

Demand fell for several manufactured products, including paper, boxes, and most construction-related products. Telecommunications manufacturers reported that seasonal factors were reducing sales. Construction-related manufacturers said that sales have begun to rebound recently, after dropping off between 10-25 percent in March and early April. Much of the reduced demand for construction-related materials was attributed to rainy weather, and contacts remain optimistic that sales over the coming year will be "good." Sales of computers continued to increase at the same pace, and demand for computer-related fabricated metal was rising rapidly. Semiconductor contacts report that inventories are "about the right size." The semiconductor industry continued to show signs of rebounding, and there were reports of increases in orders, but a large semiconductor manufacturer had implemented an absolute spending freeze until May 15. Apparel manufacturers reported strong demand for their products during the first quarter. Sales of lumber to commercial builders was up. Producers of bulk commodity petrochemicals such as ethylene and propylene continue to experience extremely strong demand.

Business Services
Demand continued to increase for most business services, including temporary staffing, accounting, consulting and legal services. Legal firms reported that real estate projects, such as residential and strip center development, were keeping them busy. Also strong were activities related to new company formation and rig deals in Houston. Demand for temporary employees at all skill levels remained high. In the Austin and Dallas/Fort Worth areas, demand was strong from computer manufacturers and their suppliers.

Retail Sales
Retailers reported softer sales growth in March and April compared to January and February. One retailer was "surprised how much it slowed down" while another said "sales were a little slower but not bad." One contact said several companies reported increased trouble with collections. Auto sales in the Dallas area rebounded from declines in the winter, but are down about 10 percent from a year ago.

Financial Services
Demand for financial services remained flat over the last six weeks, except for an increase in business loans. Most contacts reported no change in credit standards, with the exception of tighter credit standards for consumer loans. Some bankers, and others as well, have expressed increasing concern that credit standards have not been tight enough.

Construction and Real Estate
Contacts reported that construction activity rose modestly over the past six weeks, despite a slow down in single-family home construction. Apartment construction picked up, although some contacts noted that the apartment market may be becoming over built in certain parts of the state�particularly in Austin. Hotel construction was strong, and office construction is beginning to increase. Speculative construction of warehouses continued despite warnings by several contacts that supply may be out pacing demand. Tight vacancies in many suburban office and apartment markets continue to boost rental rates. Home building continues to remain below last year's levels, and one builder said that higher interest rates have had "a noticeable effect on buyer traffic."

Despite lower crude and product prices, energy industry activity remains brisk, driven by new technology and high cash flows for producers over the past 18 months. Contacts said that drilling capacity in the Gulf remains essentially at 100 percent, and demand exists for 10 to 20 additional rigs, helping to push up rental rates for off shore rigs. Oil service and machinery companies also continue to report very strong activity levels. Downstream prospects have brightened because refinery margins improved as product prices fell more slowly than crude prices.

Agricultural conditions have improved overall. Heavy rains have delayed planting but provided much needed moisture for crops and livestock. Ranchers reported that rain has helped relieve the pressure to sell off cattle, and herds are now being rebuilt.

Return to topReturn to top

Previous Kansas City San Francisco Next

Home | Monetary Policy | 1997 calendar
To comment on this site, please fill out our feedback form.
Last update: May 7, 1997