Federal Reserve Bank of Dallas
Summary of Economic Activity
The Eleventh District economy expanded moderately over the reporting period. Growth continued in nonfinancial services and resumed in manufacturing and retail. Home sales and energy activity were flat, and bank lending slid slightly. Employment rose in November and wage growth ticked up. Prices continued to increase at a fairly modest pace. Outlooks improved, with widespread increases in demand expectations. Interest rate cuts have had an overall positive but mild effect, with most industries needing additional time to see more robust impacts. A lot of uncertainty surrounding the election was resolved, and contacts were more positive than negative in their sentiment about prospective business conditions under the incoming administration, though some noted worry about potential trade and immigration policy changes.
Labor Markets
Employment was flat to down in October but increased moderately in November. Job gains were concentrated in professional and business services, healthcare, leisure and hospitality, retail, and manufacturing. An airline noted that employment has fallen in 2024, through attrition not layoffs, and will likely fall further in 2025. Energy contacts said hiring focused mostly on maintaining headcounts, and that there were some job losses due to recent merger and acquisition activity as well as weakness on the natural gas side. Contacts mostly reported an adequate labor supply, and those who were still having difficulty finding workers said they've seen an improvement in the past couple of months. Notably, restaurants said there were more applicants available. An exception was in trucking, where contacts continued to note a shortage of truck drivers and cited competition with high driver salaries in the oilfield as a key concern.
Wage growth picked up slightly overall. Increased wage pressure was reported for some entry-level positions in the service sector as companies reported trying to maintain competitive pay.
Prices
Prices continued to increase at a fairly modest pace over the reporting period, though a notable pickup was seen in manufacturing raw materials prices in November. Selling price growth remained moderate in manufacturing and below average in the service sector. Services firms reported fairly stable margins over the past six months after seeing some declines in the past two years. Margins continued to weaken in manufacturing, and remained a key concern among auto dealers, with one contact expecting profits to continue to decline for the remainder of the year and into 2025.
Manufacturing
Manufacturing activity increased over the reporting period, led by metals, transportation, and chemicals. Oil refineries and petrochemical producers reported increased activity over the past six weeks. Demand remained a weak spot for manufacturing overall, though a majority of firms expect an increase over the next six months, largely driven by an anticipated improvement in general business conditions. Outlooks improved in November, with several contacts expressing optimism under the incoming administration, though a couple noted potential tariff risks.
Retail Sales
Retail sales increased slightly in November after prolonged declines. Some contacts said demand was in good shape, though consumers were still looking for discounts. Auto dealers reported flat sales and that new vehicle inventories were too high. Overall outlooks improved notably, and demand is expected to increase somewhat. A few contacts pointed to the outcome of the election as a key driver of optimism, though some expressed concern over potential tariffs and how retaliatory tariffs could hamper their international sales.
Nonfinancial Services
Nonfinancial services activity continued to grow moderately over the reporting period. Revenue growth was led by professional and business services and leisure and hospitality. Staffing firms generally noted increased demand and said that business contacts see strong post-election potential for growth in the oil and gas sector as well as the industrial sector writ large. Transportation services firms noted slight increases in parcel volumes, and airlines reported very strong demand and, in some cases, record revenues. While business air travel has yet to fully recover from pre-pandemic levels, it is up notably from last year with more people travelling for work. Outlooks pushed more positive in November, and most firms expect an increase in demand over the next six months. Several contacts said they anticipate an improvement in business activity under the incoming administration, though some voiced concern over prospective changes to trade and immigration policy.
Construction and Real Estate
Home sales were flat to slightly down during the reporting period. Contacts noted that high prices and the recent rise in mortgage rates were tempering demand. Incentives for homebuyers remained widespread, squeezing builders' margins. A few contacts said that new development was being hindered by high land prices and the friction between municipalities and builders/developers.
Commercial real estate activity was mixed. Apartment demand continued to be solid, but rent concessions remained prevalent due to elevated supply. Office leasing picked up in some areas but was concentrated in class A space. Industrial demand was stable over the reporting period. Construction activity remained slightly elevated due to existing projects but starts continued to decline. Transaction volumes continued to be low as institutional investors remained on the sidelines.
Financial Services
Loan volume and loan price declines continued in November, as did credit tightening, with the pace of change similar to six weeks ago. Loan nonperformance accelerated, driven by an increase in delinquency for residential and commercial real estate loans. Despite this, concern for the health of commercial real estate loans ticked down over the past six weeks except for construction and land development, where concern increased slightly. Bankers' outlooks were optimistic. They expect a significant improvement in loan demand and business activity six months from now. Regulatory burden, net interest margin, and financial and economic uncertainty were the top outlook concerns over the next six months.
Energy
Oilfield activity was fairly flat over the past six weeks, and the pace of well completion held mostly steady despite a lower number of active completion crews. Contacts noted an increased risk that oil prices in 2025 might be weaker than previously expected, and that the lower price outlook and rising productivity could lead to less capital expenditures next year. Contacts expressed optimism that the pause on liquefied natural gas (LNG) export permits that has been in place most of the year would be lifted soon and enable more natural gas infrastructure and LNG export investment over the next several years.
Agriculture
Soil moisture conditions deteriorated over the reporting period, with more than half of the District now in drought. Some rainfall was received in mid-November which benefitted the emerging wheat crop. Row crop prices have fallen, straining farmers but benefitting livestock producers who purchase corn and other grains for animal feed. Cattle prices remained strong while milk and milk product prices fell and caused struggles for dairies. Contacts expressed uncertainty about the new farm bill in light of the upcoming change in administration, fearing needed farm safety net programs could be held up.
Community Perspectives
Nonprofit service providers noted continued high levels of demand for social services. Some said the families they serve were seeing lower benefits from federal and state services like food stamps, Medicaid, and housing and unemployment assistance, or are losing access to these services altogether. Lack of affordable housing, childcare, and transportation remain key impediments to work for low-to-moderate income individuals. Some contacts noted an increase in demand for social services by immigrants. One nonprofit said that Texas Executive Order GA-46, which requires hospitals to ask patients about citizenship status, has prompted fear in the immigrant community and that some families are not seeking the medical care they need because of it, even if they are in the U.S. legally. The nonprofit works to clarify to the families they serve that the order does not change patients' access to or quality of medical care.
For more information about District economic conditions visit: https://www.dallasfed.org/research/texas.