Beige Book Report: Dallas
August 12, 1970
The responses of corporate executives of 15 of the larger firms in the Eleventh District to questionnaires in late July and early August provided the basis for much of this report. They indicated that business sales are slightly ahead of a year ago, and inventories of most firms are "about right." Some excess capacity is reported. Capital spending apparently peaked in 1969 and is currently declining. Capital spending is expected to increase somewhat in 1971 but to remain below the current-dollar level of 1969. Employment cutbacks are reported by more than half of the responding firms, but wages and salaries are up considerably. Hurricane Celia hit the West Gulf Coast of Texas and caused damage estimated in excess of $500 million.
Most of the corporate executives reported that sales were a little higher so far in 1970 than in the same period a year ago. One electronic firm indicated that sales this year had lagged behind the level of a year ago, and another noted some softness in their recent orders. One firm in the computer industry reported that sales so far this year were up from a year ago but weakness is expected in the months ahead. One firm particularly noted an increase in price consciousness among their customers.
Although sales have not been particularly strong, most of the firms indicate that they are about in line with expectations. This would suggest that the business slowdown was correctly anticipated by most. Because the correct sales trend was anticipated by most firms, current inventory levels are considered "about right" by the majority. Three firms did indicate that their inventories were somewhat too high at the present time.
More than half of the firms represented in our sample project capital spending for the year 1970 to be less than in 1969. The dollar value of capital spending by these firms will likely be down about 14 per cent in 1970 from the 1969 level. Much of the weakness in capital spending apparently stems from a trimming back of earlier plans. Half of the respondents indicated that the dollar value of their capital appropriations for the second half of 1970 was less than earlier preliminary plans. Not a single firm reported that capital appropriations for the second half of this year would be larger than their preliminary plans. These declining capital spending plans are consistent with the report of "a little" excess capacity at four firms while one reported much excess capacity. There were no reports of capacity shortage. Some of the decline in capital spending from the high 1969 level is accounted for by electronic and computer firms that have been affected by the trimming of the defense budget, as well as by the overall business slowdown. Another major factor in the capital spending decline is the tapering off of construction by a large national gas pipeline company. The lack of new gas supplies has reduced their need to expand the transmission system. The only real strength in 1970 capital spending comes from one electric utility and some oil drilling and refining firms.
Capital spending for 1971 for this group of firms is now planned to be up slightly from the expected 1970 level but still about 7 per cent below the realized 1969 level in current dollars. Two-thirds of the firms actually expect capital outlays to be less in 1971 than in 1970. A substantial increase in capital spending is projected by a large oil company.
Every firm responding to this questionnaire reports that employee wages and salaries are up this year. The most common increase was 6 to 7 per cent while the range was from 3.5 to 8 per cent. More than half of the firms have cut back their employment level this year with the cutbacks ranging from as low as 1 per cent to as high as 25 per cent. One firm indicated that all of its work force reduction had been achieved by gradual attrition rather than outright layoffs. Employment cutbacks were most noticeable among the electronic and computer firms.
Hurricane Celia struck the western Gulf Coast region of Texas on Monday, August 3. Damage estimates range from $500 million to $1 billion. Banking services were halted for two days and then reopened on a limited basis. About 3 per cent of the U. S. oil refining capacity is located in the area struck by the hurricane. None of this capacity can operate until electric power is restored. Some of the plants suffered wind and fire damage that may take considerable time to fully repair. More than 250 small businesses in the Corpus Christi area were destroyed by the storm. Federal and state disaster aid is being made available to the affected area.