Recent indicators of economic activity suggest renewed strength in the District economy. Industrial production in Texas increased significantly in January. Moreover, employment in the five District states rose substantially, and the average unemployment rate for the region dropped. Construction activity in Texas also increased significantly, and retail sales continued to show strength. However, automobile registrations fell in January from a month before.

The seasonally adjusted Texas industrial production index rose to a record level in January, thus recovering from its slight drop in December. Among manufacturing industries, the most significant production gains in January were registered in petroleum refining and in the textile mill products, apparel products, and stone clay and glass products industries. The only industry to record a decline in January was the printing and publishing industry. The manufacturing component of the production index has risen sharply since last July after remaining relatively stable during the preceding eighteen months. Since mid-1971, this component has grown almost
7 percent.

Mining output also rebounded in January, gaining 2.3 percent over last month. Although improvements were reported in all industry groups, the significant gains were in natural gas liquids and crude petroleum mining. Contrary to the trend in manufacturing, the mining sector has fallen significantly from year-ago levels as this month's output was 2.9 percent behind that of January 1971. Output of utilities fell slightly in January but was still well ahead of its level a year earlier. The Texas oil allowable was raised for the month of March to a level 86.0 percent of capacity. This is the fourth consecutive monthly increase, reversing the steady downward pattern of allowable which existed for the first eleven months of 1971. No other District state changed its allowable in March.

Total employment seasonally adjusted in the five southwestern states rose a significant 1.3 percent in January. With this rise in employment, the average unemployment rate for these states dropped to 4.5 percent from 4.8 percent in December. The January jobless rate was the lowest in more than a year. Nonfarm payroll employment in the five-state region also increased significantly in January, with the service industries being the only major industry group to show a decline from December. The largest employment increase was reported in the construction industry.

Construction activity in the five southwestern states-as measured by the value of contracts awarded-increased significantly in January, with the increase occurring mainly in Texas. Except for Arizona, all other District states reported reductions from December. All three major categories of construction shared in the monthly gain, but residential building continued to show the greatest strength. The total value of contracts in the five-state region in January was more than half again greater than its level a year ago.

Sales of department stores in the District continued to show year-to-year gains in January, with Houston reporting the largest increase. New automobile registrations on the other hand continued to fall, with Dallas, Forth Worth, and Houston all reporting declines of about 25 percent from December. However, registrations were still substantially above their levels of a year ago.

District agriculture is progressing well. Wheat is making good growth over the District, although lack of moisture is becoming a limiting factor on dryland wheat. Cotton planting is making excellent progress in south Texas where soil and moisture conditions are generally good. Corn and sorghum planting is also making good progress, and the winter vegetable harvest continues active with favorable weather conditions prevailing. Range and livestock conditions declined slightly in January but remain well above levels of a year ago and are moderately above the ten-year average. There were 1.8 million head of cattle on feed in Texas on February 1, or 16 percent more than a year before. In Arizona, cattle on feed totaled slightly more than one-half million head, 4 percent larger than a year earlier.

The index of prices received by Texas farmers and ranchers registered a 2 percent gain in the month ended February 15, 1972 and was 21 percent higher than the level a year earlier. Most livestock and livestock product prices were up from both a month and a year ago. Crop prices generally declined from mid-January to mid-February but still averaged 20 percent higher than the year before.

Director sentiment still favors a slow to moderate growth in the economy, though reports hint at the beginnings of inventory accumulation, stronger retail sales, and heavier capital spending by business especially for pollution control. Phase Two is characterized by our directors as modestly successful in its psychological impact but of questionable long-range-control effectiveness.