September 13, 1972
Most of the major indicators of economic activity within the District were weaker in July but were still well ahead of their year-earlier levels. The Texas industrial production index edged downward from June, and the District unemployment rate rose slightly. Moreover, construction activity in the District was well below its peak reached in May. Department store sales continued to improve, however, and a survey of executives of large retail stores in the District indicated that they are optimistic about business conditions in the near future.
Nearly 90 percent of the large District retailers that responded to our questionnaire indicated that they expected their sales to be better during the second half of 1972 than in the corresponding period of 1971. Moreover, a third saw their sales being much better in 1972. At the same time, over 35 percent said they expected to increase their work force moderately in the next six months (after allowance for usual seasonal change). The majority of those responding also expected their profits to be higher in the last half of 1972, compared with 1971.
Looking back over the past six months, 93 percent of these firms noted higher sales in 1972 than in the corresponding period in 1971 and sales at one third of these stores in 1972 were much higher than in 1971. For the majority of these firms, "big ticket" items were more important in the past six months than in the same period last year. Profits were also higher during the first half of 1972 at three fifths of the responding firms, with about 15 percent recording much higher profits than during the similar period in 1971.
Compared with a year ago, almost three fourths of these retail firms indicated that the present level of their inventories was greater. Current inventory levels were categorized as too high, however, by almost half of the firms surveyed, while 40 percent said their inventories were about right. Nevertheless, disregarding seasonal influences, 43 percent of these firms revealed they planned on increasing their inventories over the next six months. In response to a question on inventory procedures, well over half of these retail firms said that their inventory practices had changed over the last five years. Of this group, slightly less than half indicated that these changes meant lower inventory sales ratios while about 30 percent said that their inventory procedure changes had led to higher inventory sales ratios.
In assessing the impact of last year's currency realignments, one fifth of those responding noted substantial increases in the prices of their imported merchandise, while two thirds reported that the prices of imported goods had increased moderately. Two thirds of the managers of the firms surveyed said they also expected retail prices to increase somewhat in the next six months, but none said they expected substantial increases.
The seasonally adjusted unemployment rate for the states in the District rose moderately in July despite an increase in total employment. Decreases in employment in both durable and nondurable manufacturing apparently were responsible for the rise in the unemployment rate. The seasonally adjusted Texas industrial production index also declined in July but still remained 10 percent above its year-ago level. All industry sectors share in the decline, as only a few individual industries showed month-to-month increases. Among those declining the most were the transportation equipment, food and kindred products, and apparel goods industries.
Total construction activity also fell sharply in July for the second consecutive month, as both residential and nonresidential building declined. Construction activity appears to be reaching more sustainable levels after reaching a peak in May and still remains well above last year's level.
District oil producing states continue to produce at maximum levels. New Mexico has made some revision in its market demand pro-rationing system in light of the continuing full production situation. The maximum production schedule has also encouraged drilling operations, particularly in Texas and Louisiana. The strong demand for gasoline from increased car sales and lower efficiency of car engines, due in part to anti-pollution equipment, has put pressure on refining capacity.
The upland cotton harvest in the southern ranches of the District is proceeding well ahead of last year's rate. Total production for the five District states is projected at 5.5 million bales, over a third higher than last year's crop, from a 12 percent increase in acreage. Both domestic and world prices of cotton are beginning to weaken, as total production is expected to exceed consumption this year. District crops in general are looking very good, and significant increases are expected for nearly all crops. Cattle on feed in Texas and Arizona on August 1 totaled nearly 2.7 million head, about one-fourth higher than last year. Reflecting these improved conditions, District farm income is expected to reach a record high this year.