Eleventh District Beige Book

Reports on Regional Economic Activity

October 23, 2024

Summary of Economic Activity

The Eleventh District economy expanded modestly over the reporting period. Activity grew moderately in nonfinancial services but was flat to down in manufacturing, retail, finance, and energy. Demand for nonprofit services increased. Home sales were flat, and agricultural conditions weakened. Employment rose modestly, and wage growth remained moderate. Selling price growth continued to be below average in most sectors except for manufacturing, where it was more typical. Outlooks were mixed, buoyed partly by the recent rate cut but weighed down by concerns regarding slowing demand and rising geopolitical and domestic policy uncertainty.

Labor Markets

Employment increased modestly over the past six weeks. Staffing firms cited a shift from temporary to direct hiring activity and added that firms were being more selective in their hiring decisions. Some firms said hiring was on pause, while professional and business services firms noted difficulty filling certain skilled positions. Most firms noted no change in the share of employees working remotely over the last year, while 11 percent cited having increased shares to boost employee morale and help with recruitment and worker retention. Among the 13 percent of employers who decreased the share of remote workers, improving teamwork and company culture were the main reasons.

Wage growth generally remained moderate. Some staffing services firms reported downward pressure on rates and one firm said in some instances the rates were so low that they were barely profitable. Texas businesses expect wage growth in the next 12 months to be 3.7 percent, on average, up from 3.5 percent in June but down from 4.4 percent in the previous 12 months.

Prices

Prices increased at a modest pace over the reporting period. Input costs were flat to up in most sectors, including energy, construction, and manufacturing. Selling price growth was moderate in manufacturing but remained below average in most other sectors. Homebuilders and auto dealers noted margin compression. Contacts' expectations of input cost growth have adjusted downward while selling price expectations were stable. Over the next 12 months, contacts expect input costs to rise 3.2 percent down from 3.7 percent in June, and plan to increase their prices by 2.7 percent, which is little changed from June.

Manufacturing

Texas manufacturing activity fell modestly in September, after stabilizing in August. Weakness persisted in durable goods, particularly in primary metals and machinery manufacturing. Among nondurables, food manufacturers saw a notable increase in new orders, while Gulf Coast refinery utilization rates dipped due to narrowing margins and seasonality. Manufacturing firms generally reported little to no impact of the port workers strike on their business, though some said if the strike had persisted it would have affected polymer production at several plastic manufacturing facilities. Manufacturing outlooks remained weak, with sluggish demand and heightened election uncertainty cited as key headwinds.

Retail Sales

Retail sales fell during the past six weeks. Auto dealers reported slow traffic and declining sales. However, not all sectors experienced a slowing. Health and personal care retailers cited modest increases, and food and beverage stores generally reported flat activity. Retail inventories held steady. Outlooks remained negative.

Nonfinancial Services

Service sector activity accelerated over the reporting period, with revenue growth strengthening to a normal pace following sluggish activity over the last year. Revenues in the leisure and hospitality sector rebounded strongly from the declines seen this summer. Revenue growth was moderate in transportation services. Airlines said air passenger demand remained stable, and business travel was returning in the form of fewer longer-duration trips rather than short, frequent ones. Growth in information services and professional and business services continued at a steady rate. In contrast, revenues in health care and education exhibited weakness. Outlooks shifted from slightly pessimistic to neutral but were still being dampened by labor costs and economic and domestic policy uncertainty.

Construction and Real Estate

Housing demand was stable during the reporting period. Contacts cited steady traffic and sales but noted lack of urgency among buyers and that clients were looking for deals. There were reports of weaker activity in the entry-level market. Discounting and rate buy downs remained widespread, and land and lot prices stayed elevated. The squeeze on builders' margins tempered outlooks.

Commercial real estate activity was steady. Apartment leasing continued to be solid, but concessions remained widespread putting downward pressure on rents. Office leasing activity improved though it remained slow and was primarily concentrated in class A space. Retail and industrial demand grew, and rents were flat to up. Outlooks improved slightly, though contacts said the rate cuts have not yet materially impacted activity or pricing.

Financial Services

Loan volumes declined in October, despite loan prices having declined for the first time since 2021. Overall, credit tightening continued and loan nonperformance rose but at slower pace for both than in the previous reporting period. There was a notable uptick in concern for the performance of office commercial real estate loans. Bankers reported working with borrowers to keep CRE loans in good standing prior to maturity, when they may be refinanced. Despite this increased concern, bankers' outlooks turned sharply optimistic. Contacts expect a significant improvement in loan demand and business activity six months from now, although they still anticipate continued deterioration in loan performance.

Energy

Oilfield activity held fairly steady over the reporting period. Input costs dipped as capacity utilization in oil field services eased. Producers continued to note an elevated level of production and improving well productivity and expectations are for modest production growth in the remainder of the year. While contacts broadly expect U.S. production to expand further in 2025, lower price outlooks, domestic policy uncertainty, long-term concerns regarding the adequacy of freshwater supply for fracking in the Permian, and geopolitical risks have heightened uncertainty in outlooks.

Agriculture

Drought conditions emerged in more parts of the state over the reporting period, straining crops. Contacts continued to report tough financial conditions for row crop farmers this year, as both cotton and grain prices are at unprofitable levels for many producers. Above-average production is needed for producers to cover costs, and that largely hasn't materialized due to dryness in some areas and hurricane damage in others. One contact emphasized needing to get the new farm bill passed to provide more beneficial safety net programs. On the cattle side, deteriorating grazing conditions are a key concern, though calf and cattle prices remain high and profitable.

Community Perspectives

Nonprofit service providers noted continued solid demand for social services. Availability of safe and affordable housing remained a top concern, and there were reports of increased demand among lower-income clients for funding for home repairs or weatherization, particularly in the aftermath of recent severe weather events. Contacts cited rising assistance requests from seniors which they attributed to inflation. One nonprofit reported rising vacancies in their senior-only housing facilities, as seniors were reentering the workforce out of economic necessity, disqualifying them for these low-cost units. Some nonprofit leaders expressed reduced concern about inflation and interest rates, with one indicating that increased confidence has led them to move forward with capital investment. However, a few others said that economic and election uncertainty has led to hesitancy to give among some donors.

Public link

Please use the above public link if you want to share this noodl on another website.