National Economic Activity Continued to Expand in October and November
Reports from the 12 Federal Reserve Districts suggest that national economic activity continued to expand in October and November. A number of Districts also noted that contacts remained optimistic about the outlook for future economic activity. Consumer spending continued to advance in most Districts, and reports on tourism were mostly positive. Employment gains were widespread across Districts, and Districts reporting on business spending generally noted some improvement. Demand for nonfinancial services generally increased. Manufacturing activity strengthened in most Districts. Construction and real estate activity expanded overall, but at a pace that varied by sector and by District. Lending typically held steady or increased. Energy and mining activity was higher on net, though lower oil prices were a concern for the oil industry in the Atlanta and Dallas Districts. Overall price and wage inflation remained subdued.
Construction and Real Estate
Construction and real estate activity expanded overall in October and November, but saw a fair amount of variation across sectors and regions. Residential construction increased on balance across the Districts and multifamily construction remained stronger than single-family construction in a number of Districts. Reports on residential real estate activity were mixed. About half of the Districts reported an increase in home sales. Many Districts indicated that sales in the multifamily sector were stronger than sales in the single-family sector. Home prices were little changed in most Districts, although prices increased in the Richmond, Atlanta, Dallas and San Francisco Districts. Nonresidential construction rose in most Districts. Construction of office space was relatively strong in some large urban areas such as New York City and Philadelphia. Industrial construction was particularly strong in the Cleveland, Chicago and Dallas Districts. Commercial real estate activity also increased in many Districts, with declining vacancies and rising rents for office space; especially strong activity was noted in the central business districts of some large urban areas. Vacancies for commercial and industrial space also dropped in several Districts.
Eleventh District — Dallas
The Eleventh District economy expanded at a solid pace over the past six weeks. Manufacturing activity continued to increase overall, although there were a few reports of slowing growth in demand. Retail and automobile sales reports were mixed, and nonfinancial services firms saw steady or improved demand. Sales of single-family homes slowed, but apartment, office and industrial leasing activity remained strong. Demand for oilfield services stayed robust while agricultural conditions generally improved. Selling prices were stable or rose slightly for most firms, and employment held steady or increased. Outlooks remained optimistic, but some contacts noted concerns about the potential effect of declining oil prices on the District economy.
Construction and Real Estate
The District’s housing sector softened slightly during the reporting period. Slower growth in home sales was partly attributable to seasonal demand changes, although some of the weakening was attributed to higher home prices as well. Two contacts said that builders were not purchasing lots as readily as they have in the past. Outlooks were mostly optimistic, but a few contacts noted concerns about price affordability and the potential impact of an increase in mortgage rates on housing demand. Apartment demand remained strong, keeping occupancy rates high and rent growth solid in most major Texas metropolitan areas. Outlooks were generally positive, but contacts expect rent growth to slow in the near term.
Office and industrial leasing activity was mostly unchanged from the previous report. Investor interest in commercial properties, including foreign capital investment, stayed solid. Outlooks were generally optimistic, although there was some concern about the potential effect of declining oil prices.
Coy Davidson is Senior Vice President of Colliers International in Houston. He publishes The Tenant Advisor blog.