A rebound in retail sales and broad-based demand for a wide range of products and services helped sustain a growing regional economy prior to Hurricane Harvey’s arrival, according to a report Wednesday from the Federal Reserve Bank of Dallas.
However, some of the report’s weakest notes emerged from areas later hammered by the storm, which shut down key supply and transportation channels for most industries in the region.
In its chapter of the Beige Book, an anecdotal survey of the economy compiled every six weeks by the Federal Reserve banks, the Dallas Fed said economic activity in its district “continued to expand at a moderate pace.”
However, it noted, the surveys and responses used in the report were compiled before Harvey struck the coast, flooded much of Houston and shut down the heart of the Texas economy.
The Dallas Fed’s district includes all of Texas and parts of New Mexico and Northern Louisiana. Texas accounts for more than 95 percent of the region’s economic activity.
How the Texas economy fares in the near-term aftermath of the hurricane remains to be seen. However, some uncertainty already had emerged in Houston and with some of the industries with a large presence there – oil and gas, especially.
While employment levels continued to rise throughout the district, staffing services noted some unexpected drops in demand from Houston’s oil and gas firms, according to the report. Strong auto sales helped boost retail sales district-wide, despite softer vehicle demand in Houston and Central Texas.
The energy industry remained on stronger footing than two years ago, but it was far from ascendant. Oilfield services demand held steady and drilling in the Permian Basin expanded, but drilling activity throughout the district tapered off.
Firms expected rig counts to hold steady or fall the rest of the year and expected lower prices for the first half of 2018. Several of the Dallas Fed’s contacts in the sector said they were scaling back plans for capital spending.
Prior to the hurricane, refinery utilization rates were increasing along the Gulf Coast, the report said. Harvey knocked off almost two-thirds of Texas refining capacity in the days following landfall, although many of those facilities have restarted or will soon do so.
The hurricane also shut down one of the country’s largest ports and brought a key rail and freight transport hub to a standstill. Those operations also were resuming this week, and they had entered the storm period in healthy condition, according to the report.
Contacts in most industries reported optimistic outlooks on business and the economy. Political uncertainties – including the possibility that NAFTA renegotiation could limit export markets for farmers —tempered the overall enthusiasm.
Prior to Harvey, overall employment gains and a tight labor market appeared to be pushing up wages. Despite slower hiring at retailers and energy firms in particular, reports of labor shortages “were widespread across sectors, particularly for skilled workers,” the report said.
Factory production accelerated during the six-week periods, partly due to stronger output of computer and electronic products and other durable goods.
Demand for nonfinancial services rose, particularly for professional and technical services. Commercial and industrial lending helped boost overall loan demand despite sluggish consumer lending, the report said.
Home sales held mostly steady, with moderately priced homes in much higher demand than high-end price points. Apartment leasing remained active in Austin, the report said, but rent growth had moderated and “intensive” competition among new properties had led to incentives in some high-end submarkets.