Beige Book Report: Dallas
June 17, 1970
Economic conditions in the Eleventh District resemble those for the nation as a whole. The slowdown in the pace of economic activity seems less pronounced in the District, however, than in the nation. Total employment is still edging upward in the District, and the value of construction contracts awarded during the first four months of 1970 is up sharply from the same period in 1969. The Texas industrial production index :has been trending irregularly downward, primarily owing to a drop in durables manufacturing. Bank credit and total deposits at the Eleventh District weekly reporting banks declined in May.
Despite the slowdown in economic activity in the District, inflation remains the major concern of businessmen and bankers for the rest of 1970. This point emerged clearly in recent responses to questionnaires from both Head-Office and Branch-Office Board members. The Branch Board members further revealed an overall lack of confidence that monetary and fiscal policy would succeed in bringing inflation under control. They now favor the Federal Government's setting up some form of wage-price guidelines to be followed voluntarily by business.
Total nonagricultural employment in the five states of the District continued to increase in April, but the slim gain was less than seasonally expected. Manufacturing employment actually declined slightly in April. While widespread employment reductions are not evident in the District, job opportunities, in relation to the labor force, are not as plentiful as a year ago. The unemployment rate has increased, and in Texas, for example, initial unemployment insurance claims are almost twice as high as a year ago. These aggregate data tend to confirm the information given by Board members. Most of the Board members indicated that employment reductions were not anticipated in their industry, but a comparison of June responses with those received in May revealed some slight weakening in employment.
The seasonally adjusted Texas industrial production index declined in April from the March level and has generally trended downward in recent months.
The manufacturing sector, particularly durable goods manufacturing, has been the source of weakness in the production index. Petroleum mining and refining, however, remained at unusually high levels during the spring period, avoiding the usual seasonal decline. Petroleum stocks have built up to excessive levels recently, and the regulated oil production allowables in the District are generally lower for June than for May. This is likely to cause some further weakness in Texas industrial production this summer.
The value of construction contract awards declined in the District in April from the March level, but on a cumulative basis the January-April 1970 level is nearly one-third higher than in the same four months of 1969. The value of residential construction contracts so far this year has nearly matched the 1969 level, while nonresidential building and nonbuilding construction contracts are sharply higher than in the same four months a year ago. Responses of District Board members indicate that capital spending plans have not been curtailed in most of their firms. One Board member in June and one in May did report a substantial downward revision in plans for the current year. These capital spending plans are consistent with the view of most Board members that sales in their industry are either stabilizing or strengthening at the present time. Furthermore, nearly all the Board members report that corporate planning in their firms for 1971 is based on the expectation of a modest increase in sales and profits. Responses indicate that not a single Board member expects a decline in sales or profits for 1971.
Aggregate data opinions of Board members and responses of District
retailers all confirm the observation that retail sales have been
weak so far this year and the real volume of goods sold has probably
declined. Sales of department stores in the District were very
sluggish during the last two thirds of May, and in some weeks the
current-dollar sales actually trailed the figure for the
corresponding weeks a year ago. Department store sales improved
noticeably, however, during the first week in June. Auto dealers in
this District who were contacted recently indicated that the bottom
of their
well-known sales decline may have been reached. Sales
results for the first ten days of June indicated to most that the
total monthly volume might equal or exceed that in June 1969.
The auto dealers contacted generally felt that their sales weakness was in total volume and that a noticeable shift in demand to lower priced or lesser equipped cars had not occurred. Nonautomotive retailers are noting some substitution of lower priced for higher priced merchandise. This observation was made mostly by department store managers, while more specialized retail establishments reported less shift toward lower priced merchandise. Of particular note was increased consumer attention on specials for specific items or on bargain basement merchandise rather than the regular stock.
Bank credit at District weekly reporting banks declined in May, as a result of reductions in both loans and securities holdings. Business loans fell further in May, following declines in each of the previous four months of 1970.
Total deposits at the weekly reporting banks also declined in May, caused mainly by a drop in demand deposits, much of which represented reduced holdings by the United States Government. Discount window borrowings and net purchases of Federal funds by the Eleventh District member banks also declined in May.