Dallas Fed: Regional economy expands on rising demand, energy recovery

Widespread increases in demand and the continued recovery of the Texas manufacturing and energy sectors fueled solid regional economic growth in recent weeks, according to a report Wednesday from the Federal Reserve Bank of Dallas.

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 the economic activity in its district “expanded moderately” since the last report.

The Dallas Fed’s district includes all of Texas and parts of New Mexico and Louisiana. Texas accounts for more than 95 percent of the region’s economic activity.

While many contacts expressed some lingering uncertainties—particularly around the impact of potential policy changes from the White House—outlooks on business conditions generally improved over the past six weeks, the report said.

Employment rose during the period, with relatively strong hiring by manufacturers helping offset some reticence to hire among retailers. Energy sector contacts said most layoffs are behind them, and some reported increased hiring.

Manufacturing and construction companies said they continued to have trouble finding skilled labor, and some restaurants also noted a shortage of qualified applicants. Wages continued to edge higher, as was noted in the previous report.

Demand for goods produced by factories in the district continued to rebound from weakness last year. Even some fabricated metal manufacturers, whose close ties to the oil and gas industry continue to put a damper on demand, have started to see some signs of increased activity.

However, the report said, a strong dollar and a softer economy in Mexico hurt exporters, who also expressed concerns about new federal policies.

“A few manufacturing contacts said their customers held a ‘wait and see’ approach and that there is considerable uncertainty,” the report said, “including over the potential impacts related to policy changes from the Trump administration.”

While new policy directions and the strong dollar helped slow retail demand along the border, retailers across the district reported a modest uptick in demand, despite some softness around the oil patches.

Most nonfinancial services firms saw rising business activity, as well. Demand for staffing services rose, especially in Dallas, but Houston also saw moderate gains, including from oil and gas companies, the report said.

Banks and other financial services firms reported rising loan activity during the past six weeks, fueled by strength in commercial real estate and mortgage lending. The Dallas Fed’s contacts reported higher interest rates on loans and deposits, alike.

Those rising rates provided cause for some mild concern in construction and real estate, but another rise home sales had 2017 off to a good start. Apartment demand remained solid across most of the district and occupancy rates remained high. Office demand was strong in Austin and Dallas but still fairly weak in Houston.

The greater Houston economy could draw momentum from the healthier energy sector. Rig counts rose again over the past six weeks and demand for oilfield services increased, mainly in the Permian Basin.

Things looked even sunnier for farmers and ranchers. Good weather had crops in good shape, and some farmers started planting earlier than usual. Cattle and cotton prices both rose over the past six weeks, as did beef and cotton exports, according to the report.

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