WASHINGTON (MNI) – The following is the latest Beige Book survey of
economic conditions in the Federal Reserve’s Eleventh District,
published Wednesday:

ELEVENTH DISTRICT-DALLAS

The Eleventh District economy grew at a moderate pace over the past
six weeks. Overall manufacturing activity continued to expand. Demand
for business services rose slightly, and transportation services
activity remained positive overall. The housing sector continued to
improve modestly, and nonresidential leasing activity remained solid.
Respondents said retail sales grew at a modest pace and auto sales
strengthened. Financial firms noted a modest pickup in loan demand.
Energy activity continued to be strong, although gas-directed drilling
activity weakened. Drought conditions improved. Employment levels were
steady to slightly higher. Prices were unchanged or somewhat higher,
according to contacts. Outlooks across industries remain positive, but
more respondents noted concern about higher energy costs.

Prices

Responding firms said prices held steady or increased, and several
noted concerns regarding rising fuel costs. Food producers reported
increases in selling prices to offset high input costs, and airlines
noted higher fares. Intermodal transportation firms said they had
increased prices in response to higher fuel costs, and parcel shipping
firms noted plans to increase surcharges to offset rising fuel costs.
Retailers and automobile dealers said higher gas prices had not
significantly affected sales. Agricultural commodity prices declined
since the last report. The price of WTI averaged $105.95 per barrel
during the reporting period. Natural gas prices fell from $2.50 per
thousand cubic feet to below $2.20. Gasoline prices rose by 34 cents per
gallon over the past six weeks, and the price of diesel rose by 20
cents. Prices of petrochemicals and plastics also increased since the
last report.

Labor Market

Most responding firms said employment levels held steady since the
last report, although several noted slight increases. Staffing firms
said demand softened slightly in March, but direct hires were still
strong. Staffing contacts also noted shortages of skilled workers in IT
and accounting. There were scattered reports of small employment
increases in the high-tech manufacturing, transportation manufacturing,
metals, auto sales and airline industries. Accounting firms noted a
pickup in temporary workers due to the tax season. Wage pressures
remained minimal, although slight salary increases were noted by some
legal, auto and high-tech manufacturing firms.

Manufacturing

Overall demand for construction related products increased since
the last report, although a few respondents’ outlooks have become
slightly more guarded. A cement producer and a lumber firm noted
improving demand in the residential sector, while a fabricated metals
producer said private projects related to oil and gas, manufacturing and
highway construction were driving the pickup in demand. Primary metals
firms noted that commercial construction projects including hospitals,
schools and government buildings were a factor behind improving demand,
along with solid sales to truck and trailer manufacturers.

Respondents in high-tech manufacturing reported that orders
continued to grow at a modest pace since the last report. According to
contacts, key demand drivers continue to be mobile applications, cloud
computing and automobiles. One contact noted that demand for DRAM memory
remains weak relative to supply, while demand for flash memory and logic
devices is generally good. Most respondents expect demand to continue to
grow at a modest pace over the next three to six months.

Aviation equipment manufacturers said demand weakened during the
reporting period. Contacts were less optimistic in their outlooks for
the year, citing high energy prices and the bankruptcy of several
service and maintenance companies that serve the airline industry. Food
producers said sales activity increased over the past six weeks, and
near-term outlooks were positive. Reports from paper manufacturers were
mixed but overall suggested steady to slower growth in demand. Contacts
expect moderate growth for the year. Petrochemicals producers said
planned maintenance outages have tightened capacity, constrained
production and raised the price of ethylene. Capacity was reduced by
closures during the recession, and new modern plants will not be on line
for several years. The pass-through of higher ethylene prices has
weakened export demand for petrochemical products including
polyethylene. Gulf Coast refiners noted steady margins overall since the
last report.

Retail Sales

Retail sales grew modestly over the comparable period a year ago
and performed in line with expectations. According to some national
retailers, the Eleventh District’s strength relative to the nation
declined as warm weather in the north and east prompted strong spring
clothing sales in those regions. Contacts noted that consumer demand
appears healthier, and most expect moderate sales growth for the year.
Inventories are being managed closely. Automobile sales showed strength
in late February which continued through the first half of March.
Contacts noted that customer concern over gas prices remains muted at
this point, but they have seen more interest in smaller vehicles
recently. The outlook for sales remains optimistic.

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** MNI Washington Bureau: 202-371-2121 **

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