July 28, 2004 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

Eleventh District economic activity continued to expand from late June to mid-July. Manufacturing activity increased and activity strengthened in the service sector. Retailers reported some softening of sales growth over the past few weeks. Construction and real estate activity continued to improve. The financial services industry said lending was up slightly, but deposit growth has softened because money is returning to financial markets. Energy activity was mostly unchanged. Agricultural conditions remain favorable. Prices Price pressures are mixed. A number of manufacturing industries continued to report higher selling prices but the rate of growth in price increases slowed for some products and retailers reported some softening of pricing power. Transportation and energy costs remain a concern for many industries. Crude oil prices remained volatile, peaking at an all-time high on June 1, drifting down in mid-June, and then surging back up again. Domestic consumption of crude oil has softened in recent weeks, falling back to levels near a year ago. Inventories are back up to the five-year average. Natural gas prices have stayed relatively high, between $6 and $6.50 per thousand cubic feet. Producers of fabricated metals report that shortages for some inputs are driving up prices and causing some construction projects to be delayed or cancelled. Primary metals producers say rising input costs are being passed along to customers, although margins are less than a year ago. Shortages of scrap remain a concern. Contacts say that China was driving up the prices of scrap a few months ago, but now it's the domestic steel mills driving up prices. Producers of clay, cement, brick, tile and glass continue to report cost pressures from higher input and transportation costs. These producers say they are able to pass some of these cost increases on to customers. Prices are up for paper, recycled materials and pulp. Strong demand combined with capacity limits pushed up prices for chemicals, such as chlorine, benzene, styrene and polyvinyl chloride, although price increases slowed for other chemicals. Apparel manufacturers say that prices continue to decline. Price reports from retailers were mixed. Some retailers say customers are less resistant to price increases and selling prices are up, particularly for women's apparel. Other retailers say price competition remains stiff and, after experiencing some pricing ability earlier this year, discount stores advanced their clearance sales by three weeks. Labor Market There are scattered reports of a strengthening labor market, with an increase in the number of firms hiring or considering hiring. There were also more reports of wage increases. Contacts continue to be concerned about the high cost of workers compensation, health care and insurance, but several noted that the rate of growth in these costs has slowed. Manufacturing Manufacturing activity continues to increase. Demand was seasonally strong for clay, cement, brick, tile and glass, despite heavy rains in June slowing construction-related activity. Producers reported an increase in demand for lumber, paper, apparel, food products, and primary metals. Demand for fabricated metals is up, partly because of a pick up in demand from the commercial construction industry. Contacts expect the industry to increase hiring in the future but say they are becoming less labor intensive and more capital intensive with the addition/refurbishing to more modern/efficient equipment. High-tech manufacturers reported mixed results. Some contacts said sales were slower in the second half of June and others reported some recent pickup due to low inventory levels. One respondent noted that sales contracts are being written for much shorter periods than they were three or four years ago and that this likely reflects the continued uncertainty about the outlook. Telecommunication manufacturers report slight gains in hiring and wages, but contacts remain cautious. Gasoline demand dipped slightly in recent weeks, falling back to the levels of a year ago. Refineries along the Gulf Coast operated at capacity utilization rates of 97-98 percent through June, according to producers, who said that gasoline inventories are still near the bottom of the five-year average. Refined product imports were at high levels, but did little to help gasoline inventories, especially for reformulated gasoline. Chemical producers report strong demand. Services Service sector activity strengthened. Temporary staffing firms report a pickup in demand--primarily from employers adding to their payrolls in the light industrial, manufacturing, customer services and leisure and hospitality sectors. Demand for legal services is up slightly. Firms say they have increased hiring of lawyers and paralegals both as a reaction to and anticipation of higher demand. Summer airline traffic has been solid, but airlines report that increased industry capacity and higher fuel costs have impaired profits. Trucking activity remains strong, and firms report a shortage of qualified truckers. Demand for rail shipments also continues to be very strong. Some manufactures expressed concern that railroad congestion was making it difficult to get raw materials from vendors and finished products out to the market. For the first time in several years, telecommunications service firms say demand is picking up from both residential and business customers. The industry remains competitive, and prices continue to fall. There are also reports of some limited hiring. Retail Sales Retailers report some softening of sales growth over the past few weeks, leading most contacts to be slightly more cautious about the outlook for sales over the next few months. Sales are stronger at high end stores than at department stores, according to contacts. Sales of women's apparel were notably stronger. Automobile sales in the District remain weak. Construction and Real Estate Demand for residential real estate remains strong, and existing home sales in many markets are on pace to beat last year's record. An increase in the supply of homes available for sale has restrained selling prices according to contacts. Homebuilders continued to report cost increases. Apartment demand improved in the second quarter but not at the pace that most contacts had expected. Construction of new units has not eased, and rents remain on a downward trend. Demand for industrial space rose steadily over the past six weeks according to contacts. Office demand picked up among larger tenants recently, according to contacts, and concessions continued to decline. Sill, rents remain depressed. Financial Services Deposit growth is unchanged or down slightly. Contacts say customers are moving money into financial markets even though deposit rates are up slightly. There has been no change in the rate of loan growth. Commercial and industrial lending has increased, but competition remains stiff. Consumer lending is growing modestly. Mortgage activity was reported as unchanged. Energy Domestic and international drilling activity is quite strong. The U.S. rig count strengthened by 40 rigs in recent weeks, finally moving above 1200 working rigs, but drilling in Texas has remained flat at about 495 working rigs. The rig count in the Gulf of Mexico remains stuck at around 90 rigs, well below the 165 rigs at the last peak in activity in 2001 and the 110 rigs working at the last drilling trough. Many parts of the oil field service industry report excess capacity. Producers say balance sheets are quite strong, but there is no where to invest all the money because domestic drilling is constrained by a lack prospects and international drilling is limited because oil prospects are concentrated in high risk, politically volatile countries. Most producers are using cash flow to repurchase their own stock. Agriculture Crop conditions have been mostly favorable. Producers say that cotton plantings and conditions are improved over a year ago. Demand for cattle remains solid. Return to top Kansas City San Francisco