Federal Reserve Bank of Dallas
Summary of Economic Activity
The Eleventh District economy expanded modestly over the reporting period. Activity grew in the nonfinancial services and energy sectors. Manufacturing output was flat, while retail sales and home sales declined. Demand for nonprofit services increased. Employment was stable, and wage growth remained moderate. Selling price growth continued below average in the service sector but was more typical in manufacturing. Outlooks were somewhat mixed, though most businesses expect demand for their goods and/or services to stay the same or increase over the next six months. Concerns included weakening demand as well as rising domestic policy and economic uncertainty.
Labor Markets
Employment was largely flat over the past six weeks. Some firms reported implementing hiring freezes due to economic uncertainty or weak demand, though most view this as a temporary measure and anticipate hiring later in the year. Still some firms noted difficulty hiring for openings ranging from entry-level positions to upper-level management, and especially mid-skill workers including commercial drivers.
Wage growth remained moderate overall. Staffing services firms stated employers were concerned about keeping costs down and employers subsequently lowered compensation offers to new hires. Some industries continued to report notable upward wage pressure, particularly airlines and healthcare.
Prices
Price growth was largely typical over the reporting period. In the service sector, selling price growth was running below average even as input price growth ticked up in August to an average pace. By contrast, growth in manufacturing, raw materials and finished goods prices have normalized after more modest increases earlier this year. Retailers meanwhile noted that selling prices were flat. A few firms noted the rising prices of auto, home, health, and liability insurance and the negative effect these increases were having on businesses and households. One financial firm observed that some low-income households are dropping or not renewing their home insurance. A staffing services firm reported higher fixed costs due to increased insurance premiums.
Manufacturing
Texas manufacturing activity was flat in the past six weeks. Hurricane Beryl and the ensuing power outages disrupted production at some manufacturers and refineries, but the dip in production was brief. Despite the disruptions, refineries on the gulf increased the volume of crude oil processed. Some paper, fabricated metal, computer and electronics, and machinery manufacturers reported a slowdown that was independent of weather conditions. New orders for durable goods were flat while new orders for nondurables declined. The manufacturing outlook was weak with firms citing economic uncertainty, upcoming elections, high interest rates, and anemic global demand as the main strains.
Retail Sales
Retail sales declined slightly during the past six weeks. Firms attributed the weakness to reduced consumer demand and bad weather. Not all sectors experienced a slowdown, as auto dealers and wholesalers reported a moderate increase in sales. Retail inventories increased moderately after several months of little to no growth. Overall, outlooks remained pessimistic although less so for auto dealers and wholesalers.
Nonfinancial Services
Service sector activity picked up over the reporting period, with revenue accelerating to closer to a typical pace. Growth was strongest in professional and business services and information. Airlines reported higher demand for premium and international travel. In contrast, the leisure and hospitality sector reported widespread revenue declines this summer, with some of the weakness attributable to bad weather. Some services firms reported temporary disruptions to operations due to Hurricane Beryl. In addition, air cargo volume was down due to halted operations during the power outages. Outlooks were generally positive albeit less so than the last reporting period, reportedly weighed down by political and economic uncertainty and high interest rates.
Construction and Real Estate
The housing market weakened during the reporting period. The softening was attributed to a slower pace of relocations, a softer job market, and Hurricane Beryl, which disrupted economic activity. Both new and existing-home sales were sluggish, with seasonal slowness more pronounced than usual for this time of year. Several contacts noted lighter traffic, while others said traffic was steady, but sale conversion rates dipped. Builder incentives such as free upgrades, discounting, and rate buy downs remained widespread, squeezing margins. Outlooks were cautiously optimistic.
Apartment leasing was solid during the reporting period. The office market remained weak, though there were reports of a pickup in leasing demand for small spaces. Industrial demand grew moderately, and rents were flat to up. Outlooks were mixed.
Financial Services
Loan volumes were flat in August after increasing in the prior two periods, and loan demand slipped. While overall credit tightening continued, standards and terms stabilized for residential real estate and consumer loans after more than two years of tightening. Loan prices held steady, marking the first time since 2021 that rates didn't rise. Loan nonperformance continued to increase. A greater share of bankers reported a high level of concern regarding the performance of office real estate loans. Liquidity and net interest margins remain top concerns for bankers. Bankers' outlooks faltered somewhat: They expect a deterioration in loan demand, loan performance, and business activity six months from now.
Energy
Oilfield activity was flat to up with a slight decrease in the number of active rigs and a slight increase in the number of active frac fleets. Producers also noted better than expected well productivity, but pipeline delays pushed back some production growth to the fourth quarter. The lack of takeaway capacity has regularly kept local natural gas prices below zero this summer, inflating costs and suppressing profits as producers must pay to have natural gas piped away. The offsetting effects of pipeline delays and improved well productivity growth are keeping outlooks unchanged from six weeks ago which called for a modest production growth by year-end.
Agriculture
Crop and pasture conditions generally remained favorable, though hot and dry conditions were putting strain on certain areas while Hurricane Beryl caused some flooding along the coast. Crop prices moved down, and contacts reported that it was a tough financial situation for farmers this year. One noted that the smaller producers especially are still trying to make up for the losses from the 2022 crop year, and the fact that this year isn't materializing into the profitable year needed could put a segment of growers out of business.
Community Perspectives
Nonprofit service providers noted an uptick in demand stemming from Hurricane Beryl. Some contacts noted difficulties in serving clients because their own establishments suffered damages and power outages. In addition to food and water, organizations handed out gift cards to meet essential needs. One contact raised the concern that disasters disproportionately affect low-to-moderate-income households, and the impact can last for weeks to months. Several contacts are looking to prepare for future storms, such as addressing the lack of power generators in senior living facilities. A contact in Houston noted the need to be proactive and not reactive to disasters as "disasters are constant in our communities."
For more information about District economic conditions visit: https://www.dallasfed.org/research/texas.