| Skip to content
|
In late June and July, Eleventh District economic activity accelerated slightly. Demand for manufactured goods and cargo transportation services increased. Energy activity increased slightly with more gas drilling and less oil drilling. Demand for business and financial services was steady, and construction and real estate activity was unchanged. Agricultural producers reported generally good growing conditions. Retail sales slowed in July.
Prices
Over the past six weeks, there were more reports of price increases than decreases. Firms reported labor market tightness led to wage increases of 5 to 7 percent in the food industry and 5 to 10 percent for programmers and engineers. Wages of truckers and legal and temporary workers also rose. One food manufacturer said, "There's nobody out there to hire." A decline in applicants was also reported by lumber and paper firms. An ongoing shortage of skilled construction labor caused continued backlogs in new homes orders and higher building costs. Prices of building products--such as lumber products, imported hardwoods, brick and metals--also rose slightly over the past six weeks. Home prices increased at a slower rate, and builders reported that increased construction costs kept margins unchanged from last year. Prices of hydrocarbons--such as oil, natural gas, fuels, ethylene and polyethylene--rose, but margins on gasoline and most petrochemicals slipped. Paper and box prices rose 6 to 10 percent in July, due to decreased supply. Several retailers said selling prices increased slightly in the second quarter. Prices of apparel, cars, and business services were unchanged. Timber prices and air fares continued to fall. Some firms reduced cement prices by as much as 10 percent due to increased competition. Some memory chip prices fell sharply since the last beige book, but were expected to increase in coming months.
Manufacturing
Manufacturing activity increased over the past six weeks. Contacts reported a pickup in chemical sales to Asia and the construction industry. Semiconductor sales to Asia also picked up as retail inventories were depleted. Semiconductor firms reported increased hiring, as overall chip sales rose due to a pickup in final-product sales and in anticipation of strong demand for new products. Sales of fabricated metals were up slightly because of increased demand from the semiconductor industry. Food sales were also up somewhat. Backlogs of brick orders rose to record levels due to continued strong demand from homebuilders. Sales of lumber, paper, primary metals and apparel were steady over the past six weeks. Cement producers reported weaker sales and swelling inventories in July due to wet weather, slightly lower demand from homebuilders and continued weakness in the agricultural and energy industries. Weaker-than-expected gasoline demand in July, rising oil prices and excess inventories put downward pressure on refiner margins.
Services
Demand for business services was steady over the past six weeks. Temporary services firms reported a slight increase in demand. Legal and accounting contacts reported softening demand over the past three months in the real estate, energy and agriculture sectors, but continued strength in mergers and acquisitions, litigation and the technology sector. Demand for trucking services strengthened and demand for rail cargo services remained steady in the last six weeks. Trucking contacts expected continued increases in cargo volumes.
Retail Sales
Some retailers reported that sales slowed significantly in July after growing at a hectic pace in May and June. Overall Texas sales were reported as slightly weaker than national sales, which is typically not the case. Although inventories were depleted as a result of two months of heavy sales, contacts believed that the sales drop was not just related to lower inventories. Customers may have postponed some purchases until the Texas retail tax holiday weekend in August. Nevertheless, "anything household-related has flown off the shelves." Contacts remained cautiously optimistic about the outlook, reserving their judgement until they see back-to-school sales. Auto sales remained steady over the past six weeks at levels above last year, and "higher than anyone had expected."
Financial Services
Contacts reported continued healthy credit quality at district banks over the past six weeks, but reported some minor concern of worsening credit quality in larger banks at the national level. Loan demand was steady, with "near record" auto and consumer type lending, competitive commercial lending, weak agricultural lending, and a tapering off in real estate lending. Most contacts report Y2K readiness and expect no problems this winter.
Construction and Real Estate
Construction activity stayed hectic but slightly fewer homes and offices were started. Real estate activity was steady over the past six weeks, with continued brisk used home sales. Despite increased office absorption over the past three months, completions of new buildings increased vacancy rates in Dallas. New home sales softened somewhat but remained at very high levels. Industrial space absorption kept pace with supply, but some contacts expected slight declines in occupancy rates by year-end as new projects are completed.
Energy
Although the rig count increased in recent months, contacts reported a much smaller increase in the demand for oil services and a continuation of layoffs. Increases in the rig count have come from gas-directed, low-risk, and inexpensive drilling. Despite rising oil prices, spending for capital intensive projects--such as offshore or foreign drilling--continued to decline slowly because the industry lacks confidence that prices will be sustained.
Agriculture
Agricultural producers benefited from recent disaster payments, which enabled some to pay off debts resulting from 1998 losses. Nonetheless, low commodity prices are challenging many producers, and they are having difficulty earning a profit. Crop and livestock conditions were generally good in most areas. Rainfall increased range growth and greening. Grasshoppers were a problem to both crops and pastures in many areas.
|
Kansas City