Indicators of economic activity in the Eleventh District were mixed in August. Although the Texas Industrial Production Index eased slightly from its revised record level in July, the unemployment rate for the five District states declined, and employment continued to increase. Department store sales in the District also continued strong, and construction activity rebounded sharply. However, the rate of new car registrations declined slightly.

A decrease in the production of nonmanufactured goods was primarily responsible for the slight decline in the seasonally adjusted Texas Industrial Production Index in August. The decline was centered in public utilities and crude oil mining. Nevertheless, production in both these industries was well above its level of a year ago. The Index for manufacturing industries remained essentially unchanged.

Seasonally adjusted total nonagricultural employment in the five Southwestern states rose to a record level in August and helped to push the unemployment rate down slightly. Both manufacturing and nonmanufacturing employment increased, with employment in durable goods manufacturing and mining showing particularly notable gains. Government employment and employment in service industries also increased in August. Slight employment declines were reported in construction and transportation and public utilities. However, all industry groups posted year-to-year gains.

Total construction contracts awarded in the five Southwestern states were up sharply in August. All major types of construction increased, but residential building continued to provide the primary impetus. The cumulative value of contracts awarded during the first eight months of this year is almost a third higher than in the corresponding period last year.

Department stores in the Eleventh District continue to post good monthly and year-to-year increases in sales. September sales were equally strong in the major metropolitan areas of Texas; however, cumulative figures through September show Houston and Dallas to have the largest sales increases over the corresponding period last year. New car registrations in the four largest metropolitan areas fell slightly in August, as declines in Dallas and Houston more than offset increases in Fort Worth and San Antonio.

District oil allowables for October were again set at their maximum rates. However, District production continues to fall behind domestic demand, and refiners are increasing their reliance on foreign oil. With the traditional year-end pickup in drilling adding to the already strong demand, drilling contractors in East Texas and sections of the Gulf Coast are operating at close to full capacity. Regional drilling equipment manufacturers and sellers are consequently experiencing a surge in new orders.

Agricultural production in the five District states is expected to show marked improvement over output in 1971. A substantial increase in crop production, resulting mainly from the prospect of a bumper cotton crop, is expected to account for virtually all of this output gain. Although livestock production is expected to be slightly below its year-earlier level, the cattle feeding industry continues to grow, with most of the increase occurring in Texas.

With gains in production and improved average prices for both crop and livestock products, cash receipts from farm marketings in the District states rose sharply in the first seven months of this year over the same period in 1971. Even though a recent drop in the spot price of cotton is of major concern to cotton producers, prospects for farm income continue bright.

Total credit at weekly reporting banks in the District rose moderately in September, following a rapid advance in August. Total loans increased more rapidly, however, as commercial and industrial loan demand continued strong. The demand for business loans was especially strong from nondurable goods manufacturers and the construction and service industries. The rate of investment by weekly reporting banks declined from August. Banks also made some adjustments in their portfolios, increasing their holdings of municipal securities and decreasing their holdings of U. S. Government securities.