Dallas Fed: Slower retail sales dent region’s economic growth

March 07, 2018
DREW ANTHONY SMITH
The produce section at Whole Foods’ flagship store in Austin on Feb. 23, 2018. Driven mainly by easing auto sales, retail sales took a slight dip in recent weeks but couldn’t slow broader regional economic growth, according to a report from the Federal Reserve Bank of Dallas.Drew Anthony Smith/The New York Times

A modest decline in retail sales cooled the ongoing growth of the regional economy in recent weeks, but widespread demand and the continued resurgence of the energy and manufacturing sectors helped drive activity, according to a report Wednesday from the Federal Reserve Bank of Dallas.

In its chapter of the Beige Book, an anecdotal report on the economy compiled every six weeks by the Federal Reserve banks, the Dallas Fed said the economy in its district expanded at a “moderate” pace — slower than the “robust” growth noted in the prior report.

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 economic activity in the region.

The lighter retail activity appeared to stem primarily from poor weather conditions and a levelling of auto sales after several strong years, the report said. Contacts said Internet sales continued to rise, with one wholesaler noting that a loss in brick-and-mortar sales was offset by online sales gains.

Despite the slower sales, retailers joined regional factories and a broad range of services companies to drive hiring throughout the region – despite growing difficulty finding the right applicants.

“Widespread reports of labor market tightness and difficulty finding qualified workers continued,” the report said, “and more firms responded by raising wages than in prior reporting periods.”

The wage hikes came in part because of a growing ability for companies to pass through the cost increases, according to this and other Fed reports.

Factories across the district reported their strong expansion continued through February, with chemical manufacturers and demand from oil and gas companies fueling the drive. Plant managers noted federal tax reform and a weaker dollar as tailwinds, but said rising interest rates and inflation could offset some of that going forward.

The expansion of non-financial services moderated somewhat, though professional and business services saw strong demand during the period. Colder-than-usual weather cooled activity in the leisure and hospitality sector, and Gulf Coast contacts noted lingering struggles after Hurricane Harvey.

The weather did nothing to stop home sales, which rose and jumped off to a good start in 2018, the report said. Prices remain elevated, and builders noted concern about the potential impact of rising mortgage rates.

Rising rates caught the eye of many bankers and other financial services firms, but did little to stem lending activity. The growth of both loan demand and volume cooled during the six weeks, but the weakness was seen in general consumer loans. Residential lending activity remained strong.

The energy sector also continued to gain momentum, with a higher rig count and more well completions in the past six weeks. The average price of West Texas intermediate crude was the highest it’s been since December 2014 and “at levels favorable for increasing production and employment,” the report said.