March 4, 2026
Summary of Economic Activity
Economic activity in the Eleventh District expanded moderately over the reporting period. Activity vigorously rebounded in manufacturing while also picking up in the service sector. Bank lending, retail sales, and commercial real estate transactions grew. Energy sector activity declined slightly, and agricultural conditions worsened. Employment grew slightly, while wages and prices increased modestly to robustly. Outlooks remained steady despite persistently elevated uncertainty.
Labor Markets
Employment grew slightly over the reporting period. Hiring increased at a moderate pace in manufacturing but was flat in the service sector. According to a Dallas Fed survey of 235 service sector firms, 55 percent of businesses are not currently trying to hire workers, the highest reported percentage in three years. Of the 80 manufacturers surveyed, 57 percent reported not currently trying to hire workers; however, this percentage has been stable over the last year. The firms that are looking to hire reported slightly worsening applicant availability but improved ability to retain workers. Firms in both sectors reported that the top impediments to hiring workers were a lack of technical skills, lack of available applicants, and applicants demanding higher pay. Several contacts noted that unease about the overall economy led to better worker retention. Wage growth was generally modest but spiked in manufacturing in February.
Prices
Price pressure remained moderate in the service sector, while elevated in the manufacturing sector, as prices for both raw materials and finished goods grew at a robust pace. Raw material prices were driven up by high metals—aluminum, copper, steel, tungsten, and silver—prices. Several contacts cited strong demand, inadequate supply, and tariffs as the causes of high metal prices. Finished goods prices rose in response to increased input price pressures. One contact noted that it is difficult to pass along the high metal prices to customers in a timely manner. Another reported that input prices are increasing without notice and occasionally doubling, complicating placing new orders.
Manufacturing
Manufacturing output grew robustly over the reporting period. Both nondurable and durable production and new orders expanded at an accelerated pace. There were pockets of weakness in paper and printing output and wood and nonmetallic metal manufacturing in February. Growth in capital spending stagnated in February after having increased in January. Outlooks improved but contacts remained cautious due to concerns around high input prices, monetary policy, geopolitics, and persistent uncertainty.
Retail Sales
Retail sales grew slightly over the reporting period. Retailers continue to observe lower-income households cutting discretionary spending, trading down to less-expensive goods, and pursuing value rather than remaining loyal to brands or higher-end retailers. Food and beverage retailers are being impacted by weak consumer spending and high operating costs; both are putting pressure on profit margins. Auto dealers reported flat sales compared to the previous year. Overall, the outlook for the rest of the year is positive, with retailers anticipating an increase in sales due to improving consumer sentiment.
Nonfinancial Services
Activity in nonfinancial services grew modestly over the last six weeks. Professional and business services and accommodation and food services reported steady activity. Health care, transportation and warehousing, information, and other services experienced revenue growth, albeit concentrated in January. Airlines reported a strong start to this year in terms of bookings and revenue growth. Cargo volume increased, particularly for small parcels. Staffing firms noted an uptick in demand for their services. Despite growing activity, health-care firms reported that spending and investment decisions are on hold until there is more clarity regarding the extension of enhanced Affordable Care Act (ACA) subsidies. Overall, outlooks remain stable, with a few contacts noting they expect activity to remain steady despite high levels of uncertainty.
Construction and Real Estate
Conditions in the housing market were little changed since the last report. Traffic and activity ticked up but sales remained sluggish overall, with incentives and price discounts continuing to be widespread. Homebuilders continued to report an elevated level of speculative inventory, with ongoing downward pressure on home prices and margins. Outlooks remained cautious with contacts expecting housing starts to be lower this year compared with 2025.
Commercial real estate activity improved. Apartment absorption was slower than normal, with rents and occupancy largely holding steady. Office leasing increased, with solid net absorption reported for top-tier space in desired locations, but continued weakness in demand for lower-tier properties. Demand for industrial and retail space held up and even accelerated somewhat in some markets. Transaction velocity has picked up and there were reports of a few distressed sales in multifamily.
Financial Services
Loan volume and demand continued to increase in February. The expansion in overall loan volume has been supported entirely by commercial real estate loans; residential real estate, consumer and commercial and industrial loan volumes have been declining since the end of 2025. Credit standards and terms tightened, but loan pricing continued to decline. Overall loan performance deteriorated a touch. Bankers reported increasing general business activity, and their outlooks leaned optimistic. Survey respondents broadly expect sizeable growth in loan demand and business activity six months from now and stable loan performance.
Energy
Eleventh District drilling activity edged down slightly over the past six weeks, while well completions picked up a bit. Producers broadly reported expectations for WTI to remain around $60 in 2026, but they generally worried that the downside risk to prices was still larger than the upside risk. Midstream energy remains a relatively bright spot as firms note strong demand for construction of infrastructure to serve oil and gas production and the transport of natural gas for exports and power demand.
Agriculture
Drought conditions worsened across the District, spurring increased concern among farmers and ranchers. Low crop prices continue to weigh heavily on producers, and there have been numerous reports that government assistance hasn't been enough to cover losses in this low-price environment. On the livestock side, cattle prices remained highly elevated, and drought concerns seem to be suppressing expansion of herds. The ban on Mexican cattle imports continues to negatively impact meatpackers, with some reducing operations. The dairy industry is being challenged by low wholesale milk prices. Contacts expressed widespread uncertainty about trade policy and forthcoming weather patterns.
Community Perspectives
Nonprofits continued to report elevated demand for social services, particularly for food assistance and even after the resumption of the Supplemental Nutrition Assistance Program. The rising cost of health insurance is affecting both social services providers and clients. A food bank had to cut employee health-care benefits in response to higher costs. Another nonprofit reported increased use of its medical clinic. Several contacts noted their concern with the anticipated rise in the uninsured population as the enhanced ACA subsidies expire and changes to Medicaid requirements are implemented in 2026. Contacts worried that individuals will lose out on routine and preventative care, and hospitals will have to bear the financial toll of caring for the uninsured. This comes at a time when rural and smaller metro hospitals are struggling to recruit physicians and other medical staff. The financial pressure could force hospitals to close in these places.
For more information about District economic conditions visit: https://www.dallasfed.org/research/texas.