April 15, 2026
Summary of Economic Activity
Economic activity in the Eleventh District rose slightly over the reporting period. Growth in manufacturing output moderated to a below-average pace, while activity in the service sector was nearly flat. Bank lending increased, buoyed by commercial real estate activity, but home sales were slow. Retail sales were flat to up. Energy sector activity ticked up, while drought conditions worsened. Employment expanded slightly, and wage and price growth ranged from modest to robust. Outlooks worsened amid heightened uncertainty surrounding the conflict in the Middle East and the impact of sharply higher fuel prices on inflation, consumer sentiment, and demand.
Labor Markets
Employment overall edged up during the reporting period; it rose slightly in services but was flat in manufacturing and energy. A few staffing firms noted that heightened uncertainty was making companies hesitant to hire and candidates reluctant to switch jobs. Energy firms anticipate some job losses from ongoing M&A activity but noted that staffing needs may be reevaluated if energy prices stay high. Wage growth remained modest in the service sector but was solid in manufacturing. Firms expect wage growth to ease to 3.1 percent over the next 12 months, down slightly from their expectations at the end of 2025.
Prices
Price pressures remained moderate overall, but were elevated in manufacturing, energy, and transportation. Some firms reported that rising fuel, freight, and raw material prices were hurting profitability, and many others expected similar impacts in the near term. Input and selling price expectations among more than 250 Texas businesses surveyed were up in March compared with year end 2025, with input prices expected to increase 3.9 percent and selling prices 2.8 percent over the next 12 months. The pickup in expected input price growth was widespread, although the uptick in expected selling price growth was limited largely to manufacturing.
Manufacturing
Factory output grew modestly in March after a strong increase in the prior reporting period. The recent slowing was driven primarily by weakness in durable goods production. Demand for nondurables increased broadly. Output at Gulf Coast refineries and petrochemical plants rose following the completion of seasonal maintenance, resolution of unplanned outages, and capacity expansion for some chemicals. The closure of the Strait of Hormuz and damage to refining and export capacity in the Middle East have tightened the global refined product market and reduced output of key petrochemical products. This is expected to buoy demand for Gulf Coast exports and has pushed margins to their highest levels since 2022. Notwithstanding, manufacturing outlooks on net deteriorated slightly due to heightened uncertainty stemming from the Iran war.
Retail Sales
Retail sales were flat to up over the reporting period. One contact said that low-cost retailers were faring well, while mid-tier retailers continued to struggle. Retailers expressed concerns about high oil prices driving up shipping costs and slowing business activity. With limited ability to absorb higher costs, several contacts noted they plan to pass on cost increases to customers if gasoline prices remain elevated. Auto sales slowed in March. Auto dealers expect high gasoline prices to weaken demand. Retail sector outlooks worsened and uncertainty about future business conditions increased notably.
Nonfinancial Services
Activity in nonfinancial services was largely flat in March following modest growth in the previous reporting period. Recent weakness was attributed to conflict in the Middle East, rising fuel costs, and the partial government shutdown. Revenues were flat to down in professional and business services, education, and information services but rose in health care, transportation and warehousing, administrative and support services, and accommodation and food services. Airlines reported solid demand across regions and segments, but cited elevated fuel prices and long TSA wait times as potential headwinds. Overall, service sector outlooks were weak, with many contacts expecting the heightened level of uncertainty and high energy prices to impact demand.
Construction and Real Estate
Home sales were slow during the reporting period, likely due to higher mortgage rates, elevated uncertainty, and rising energy prices. The market remained competitive, and builders with better pricing or larger incentive packages were able to close deals more easily. One contact noted they would likely have to reverse a recent price increase to maintain sales. Outlooks remained weak, with some contacts concerned about the impact of the ROAD to Housing Act's restrictions on institutional investment in the single-family housing and build-to-rent markets.
Commercial real estate activity rose. Apartment absorption was positive but rent concessions remained widespread. Office leasing remained strong for top-tier space in desired locations but continued to be weak for lower-tier properties. Demand for industrial space was buoyed by growth in manufacturing and third-party logistics, and activity in the retail sector was characterized as solid but softening. Office construction remained subdued, while data center and industrial construction were robust.
Financial Services
Loan volume and demand accelerated in March. Upward momentum was driven by commercial real estate loans. Credit standards and terms tightened slightly, but loan pricing continued to decline. Loan performance ticked down. Bankers reported that general business activity ticked down, and outlooks were less optimistic. They expressed concerns about the impact of higher fuel prices on the economy, if sustained. A few noted that the Middle East conflict has created more uncertainty around future interest rates and that rate cuts may now be less likely. Survey respondents still expect growth in future business activity and higher loan demand, except for consumer loans which are expected to remain unchanged, while loan performance is expected to worsen.
Energy
Eleventh District oil production was nearly flat over the past six weeks, although fracturing activity and well completions edged up. Some independent producers reported an intent to drill more wells later this year in response to higher prices, and oilfield services contacts noted some increase in price quoting. However, producers broadly expect WTI prices to decline meaningfully from recent highs by year-end 2026 and fall further in 2027, viewing the Middle East conflict as likely too transient to warrant any significant production increases. Conversely, they worry that if the disruption is prolonged enough it could trigger a significant economic slowdown that undermines demand. If firms do gain confidence that prices will be elevated longer term, capital discipline as well as constraints on labor, equipment, and natural gas takeaway capacity could be limiting factors through 2027.
Agriculture
Drought conditions continued to worsen across the District, hampering production prospects for the new crop year. Most crop prices increased over the reporting period, although so did costs, spurred by higher fuel and fertilizer prices. Contacts noted that budget projections look better than six weeks ago on net, though some crop prices remain at unprofitable levels. On the livestock side, cattle prices fell but remained highly elevated, and drought concerns continued to suppress herd expansion. Agricultural contacts in general expressed concern regarding higher transportation costs and global shipping uncertainty.
Community Perspectives
Nonprofits continued to report elevated demand for social services. One contact cited increased demand among higher-income households, particularly for help with mortgage payments. More households are utilizing community resources such as food banks and neighborhood gardens, which one contact attributed to rising food costs and concern about future changes to the Supplemental Nutrition Assistance Program (SNAP). Contacts said that low- and moderate-income individuals continued to supplement their incomes through second jobs or increased work hours, even while some are enrolled in upskilling programs. Funding and volunteer shortages were a challenge for some nonprofits, and one contact reported that rising gas prices may compel volunteers to reduce hours delivering meals to homebound seniors.
For more information about District economic conditions visit: https://www.dallasfed.org/research/texas.