Beige Book Report: Dallas
December 6, 1995
Restrained in part by generally weak retail sales, the Eleventh District economy continued to follow a path of moderate expansion over the last six weeks. Retailers were optimistic going into the holiday season, but their hopes were dashed by lower-than-expected sales during the initial holiday rush. District loan demand increased since the last beige book, boosted by continued improvement in real estate markets. Manufacturing orders were mostly unchanged, with continued strong demand for electronics but flat to softer demand for other products. Demand for business services rose at a strong pace, but there were a few hints of slower growth. Transportation services were unchanged except for a seasonal pickup in demand. Conditions in energy markets were mostly the same as reported in the last beige book, except for a cold snap in the Northeast and Midwest that boosted energy prices in late November.
Although price pressures were minimal, there were more reports of wage pressures in this beige book survey than in the last one. Manufacturing contacts reported scattered labor shortages for mechanics, electricians and machinists that were pushing up wages. Contacts in the electronics industry said they were heavily recruiting engineers and software developers. In the services industry, respondents noted a tighter labor market for long-haul truckers and top-tier legal and accounting graduates. Several district contacts said there was a short supply of quality unskilled workers that was driving up entry-level wages.
Overall, orders for Eleventh District manufacturing were mostly unchanged from the last beige book report. Demand for electronics- including semiconductors, computers and communications equipment- continued to rise strongly, and backlogs were reportedly rising. Contacts said orders for most construction-related products held steady, except for concrete and cement producers who reported higher demand. Orders for paper products and corrugated boxes continued to soften, and respondents said selling prices were dropping from extremely high levels. Apparel contacts said demand continued to weaken because of soft retail conditions in recent months. Contacts in the food industry continued to report slower demand, but remained optimistic in their outlook. Petrochemical inventories were reported to be stabilizing after rising for much of the past quarter. A Chinese embargo on petrochemicals was cited as a source of concern. Refiners said they were between seasons, and noted slack demand for products in October and the first part of November. Demand for oil services and machinery remained unchanged at good levels.
Overall, demand for business sinless continued to rise at a strong pace. There were some hints of slight slowing among legal, accounting and consulting firms that was attributed to weakness along the Texas/Mexico border and a leveling off after a hot first half. Contacts in the business services industry were positive about current conditions and remained optimistic in their outlook for 1996. Hiring rose among temporary, legal and accounting firms, and several respondents reported a tighter labor market for entry-level employees and top-tier graduates.
Contacts in the transportation services industry reported a pickup in demand that was strictly seasonal in nature. Several respondents in the cargo industry cited heavy competition and an unstable Mexican economy as continued sources of weakness. Most respondents were cautious in their outlooks and were concerned that holiday demand would not be as heavy as last year.
Retail sales in the Eleventh District remained sluggish, according to most contacts. After a dismal October, retailers were slightly more optimistic going unto the holiday season, but were disappointed with the initial holiday surge. Department store and discount chain contacts in the district said holiday sale were below expectation and were weaker than national sales. Sales along the Texas/Mexico border remained depressed. Auto sales rose in November, and contacts said much of the strong demand was a result of good financing terms.
Eleventh District financial institutions reported increased loan demand, with strong demand for business and commercial real estate loans. Residential real estate loan demand was about even with levels reported in the last beige book, but contacts raid it was above last year's levels. Respondents were more optimistic in their outlooks for 1996, mostly due to expected increases in business, consumer and commercial and residential real estate loans.
Real estate conditions continued to improve in the Eleventh District. Contacts cited strong demand for industrial and warehouse space, especially along the Texas/Mexico border. Demand for office space also continued to edge up, and several respondents noted a lack of available space in high-tech suburban areas. Despite high vacancies in downtown Dallas and Houston, contacts were optimistic that office rents would continue to rise. In addition, contacts said that sales of new and existing homes were stronger.
Conditions in energy markets were about the same as reported in the last beige book report, except for a recent weather-related run-up in prices for natural gas and oil products. Natural gas spot prices rose from $1.70 per thousand cubic feet in mid-October to $2.10 per thousand cubic feet by late November. Heating oil inventories were reported to be 10 percent below last year's levels, and wholesale prices rose by five cents per gallon as colder weather hit the Midwest and East Coast. Cold weather also pushed crude oil prices slightly above $18 per barrel. For the previous five months crude prices had been hovering mostly between $17 and $18 per barrel.
Dry weather has impeded the growth of small grain crops, according to agriculture respondents. Livestock condition were reported as good, although prices for beef cattle continued to decrease. Overall, the Texas All Farm Products Price Index fell 1 percent in October, as rising crop prices were outweighed by declining livestock price.