Dallas Fed: Oil recovery adds momentum to region’s growing economy

The energy sector’s continued stabilization, an increase in retail sales and solid demand across a wide spectrum of industries boosted regional economic activity 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 … with a slight acceleration from the prior reporting period.”

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.

The recovery of the energy sector and industries closely linked to it added a little extra fuel to the region’s ongoing economic growth. Oil and gas activity “surged,” the report said, noting that the Eagle Ford has joined the pickup already seen in the Permian Basin.

While exploration and production companies noted some layoffs, hiring by oilfield services firms “picked up notably in the first quarter,” the report said.

Several contacts expected the sector’s accelerating pace will moderate as the year progresses and still sounded hints of caution, outlooks were more positive than the prior reporting period.

The same held true for regional businesses overall, as most of the Dallas Fed’s contacts said they expect 2017 to be stronger than 2016.

That showed in staffing patterns, with hiring gains across most sectors of the economy — including a gain in manufacturing employment in 2017 after net losses the prior two years. Staffing firms said demand was stronger this year than the same time in 2016.

The expansion of manufacturing activity picked up over the past six weeks, including a rebound at fabricated metal factories, many of which supply oil and gas firms. However, exports “remained a source of weakness” and several factory managers noted concerns about policy uncertainties, particularly around trade with Mexico.

While previous Dallas Fed reports have noted the negative impact of border issues on Texas retailers, as well, retail sales rose slightly faster than the prior six weeks, the report said. However, overall outlooks among retailers in the region dimmed to a more neutral tone.

In contrast, outlooks among construction and real estate firms remained optimistic, thanks in part to a strong start to the spring home-selling season. Buyers were more price sensitive and affordability remained a concern in many parts of the district.

Rent activity was mixed, however. Rent growth was strong in Dallas-Fort Worth, moderated in Austin and remained soft in Houston.

The service sector continued growing at a solid pace. Professional and technical services firms noted particularly strong gains, and the leisure and hospitality sector had a good March after losses earlier in the year.

Financial services contacts said loan demand rose, although they saw a lower volume of consumer loans. Outlooks were optimistic, with expectations of stronger demand and business activity six months from now.

And in agriculture, contacts noted good moisture levels and crop conditions. Cotton acreage is expected to increase sharply this year, thanks to expectations for higher prices. Rising prices for cattle were helping ranchers as well.

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