| Skip to content
|
Eleventh District economic activity picked up in June and July. Manufacturing activity increased, and demand for business services continued to increase strongly. Contacts reported that the strength of retail sales growth varied more than usual, but retailers were optimistic about the outlook. Construction activity grew at a moderate pace, while loan demand remained strong. Contacts reported that energy activity is still booming. Agricultural conditions were favorable.
Prices
Overall, there was little change in the reports of price and wage pressures. Memory chip prices are reported to be stable, but prices for some other chips declined more than expected. Semiconductor manufacturers said the labor market remained tight, but they have been able to fill most of their vacancies. Wages "are not skyrocketing," they said, but more firms are offering stock options or other nonwage benefits. Some lumber prices are up, such as oak, because of wet weather in the South and Southeast, but most are unchanged. Lower ethylene prices had been widely expected as new capacity comes on line, but following a serious explosion at the Shell Deer Park ethylene plant, supplies became very tight, prices held steady, and talk of falling ethylene prices temporarily ended. Respondents expect price increases for plastic products, but note that of the recent attempts to raise prices, the only significant increase to hold was for PET plastics for bottles. In contrast, the polyethylene price increases announced a couple of months ago failed. The energy industry continued to report solid wage gains, especially for workers with oil-field and manufacturing skills. Workers in those industries are said to be, "shopping around for wage increases," and competitors are hiring people away from each other at rising wages. Retailers said competition continued to restrain upward pressure on selling prices, although several contacts noted that competition was not as "cut throat" as it has been in the past, so "perhaps there was less discounting." New car prices are expected to increase when new models become available, but stiff competition is expected to keep used car prices soft. Most business services firms continued to report some wage pressures resulting from a shortage of qualified workers. Fees also were up, particularly where demand was strongest, such as for accounting and computer-related fields.
Manufacturing
Manufacturing activity increased in June and July. Activity was boosted by a pickup in demand for construction-related products, boxes, and some high tech products. Demand for energy-related manufactured products continued to be strong. The summer construction season rebounded from an unusually wet spring, boosting demand for construction-related products, such as metals and brick. While demand was below last year's level, contacts generally were happy with the level of sales. Demand for liner board, an input in box production, picked up slightly and inventories of box manufacturers dropped. However, liner board demand is still below last year's level. The semiconductor manufacturing industry reported little change in activity since the last survey. Telecommunications manufacturers said demand was up for networking and switching equipment, but demand for PBX technology was flat. Demand for most energy-related manufactured products remained strong, although a poorer than expected driving season put downward pressure on wholesale gasoline prices and refining margins. Good margins this spring induced refiners to produce full-out and contacts said capacity moved close to 100 percent early in the summer. Inventories of crude and gasoline built up, but respondents noted that the futures market was providing some incentive to build inventory. Also, the July driving season seemed to open stronger than June, offering some hope for short-term stability or improvement in gasoline prices.
Business Services
Demand for business services, such as temporary staffing, legal, accounting, and management consulting services, continued to increase strongly. Most respondents cited broad-based strength resulting from a strong economy. Legal firms were doing more deals to raise money for oil and gas rigs. At temporary staffing firms, demand was strongest for people with computer, accounting and engineering skills.
Retail Sales
Retailers reported sales growth, but the strength of sales varied more than usual. Several retailers said sales growth in Texas was slower than for the nation overall, but these retailers remained generally optimistic about the outlook based on the strength of national sales. Auto sales were better than expected in June and July, and contacts were optimistic about the outlook for sales growth.
Financial Services
Loan demand was strong, and bankers continued to report stiff competition, particularly for commercial and auto lending. Competition was more staid for home improvement and personal lending, however, and interest rates on those types of loans were a little higher. Competition reduced credit criteria in larger institutions and in commercial lending categories more than in consumer lending categories. Many of the smaller and rural respondents reported no deterioration of credit quality, however, and no pricing changes due to market pressures. Delinquencies also remained low, especially in the consumer lending categories.
Construction and Real Estate
Construction activity grew at a moderate pace during the last 6 weeks. Contacts reported a noticeable pickup in home sales, after slower activity from February through May. Housing construction increased, particularly for more affordable homes, although compared with last year, new home sales are flat overall. Office demand continued to be strong, pushing up occupancy rates and rents. Industrial demand was strong, with almost all new construction absorbed. Apartment demand and rents are up.
Energy
Despite lower oil prices than during the previous Beige Book period, oil service and machinery activity was still booming. Contacts reported that profits are high, backlogs are very large, and workers with oil-related skills are difficult to find. The U.S. rig count leveled out near 950 over the past six weeks, and respondents feel that capacity constraints for labor and equipment will limit the number of rigs that are likely to be added over the rest of the year to 50 or 60.
Agriculture
Hot, dry conditions helped spur good growth and development on spring planted crops and allowed harvest activities to make good progress. Irrigation activity increased, as well as insect activity in some areas. Disease problems also increased due to a very wet spring in many areas. Livestock conditions remained good, as did livestock markets.
|
Kansas City