Most major indicators of economic activity in the Eleventh District continue to show growing strength. Both Texas industrial production index and total employment in the five district states advanced to record levels in September, and department store sales continued strong in October. Nevertheless, construction contract awards eased slightly in September, and registrations of new automobiles also slipped. In a recent survey, the directors of this Bank and its branches revealed considerable optimism over the outlook for the first half of 1973. The directors generally agreed that the prospects were good for continued improvement in general business conditions, employment, and profits. However, they also expected increasing upward pressures on prices and wages.

The responding directors overwhelmingly expected business conditions to improve in the first half of 1973. They were also optimistic about the unemployment rate with almost all of the respondents expecting the rate to be lower, or at worst no higher, than its present level. The consensus was that total construction activity would also be either equal to or above its current level. An unsettling finding, however, was that almost three-fourths of the respondents expected the rate of inflation to increase in the first six months of next year.

Directors representing district banks reported that demand for business and consumer loans increased over the past three months. Banking respondents also felt that loan demand would continue to increase over the next six months, with business and consumer loans continuing to show the greatest strength. Although the availability of funds to meet these loan demands was generally described as either adequate or plentiful, there was widespread agreement that short-term rates would be rising over the first half of 1973. Banking directors were about evenly divided, however, in their expectations for long-term rates between those anticipating rates to remain the same and those expecting them to rise.

Directors from the nonbanking sector were also confident about the first half of next year. About a quarter of these directors expected their firms to increase employment and over half indicated that their companies were planning to increase expenditures for plant and equipment. Inventory levels were generally not expected to fall any lower and a good many respondents indicated plans to increase their level of inventories. Almost half of the nonbank directors expected their profit rates to be higher in the first half of 1973 than in the most recent quarter. These directors were not so optimistic about prices and wages, however. Over four-fifths expected prices and wages in their industry to increase, with wages increasing faster.

Seasonally adjusted employment in the five southwestern states rose again in September as both the manufacturing and nonmanufacturing sectors recorded gains. Monthly employment gains were reported in every sector except mining, where employment levels were unchanged from August. Despite the increase in employment, the unemployment rate in the five district states remained at 4.4 percent in September as the expansion in the labor force matched the gains in employment.

The seasonally adjusted Texas industrial production index rose sharply in September to a record level as all major industrial sectors of the index advanced. Within manufacturing, the production indexes for both durables and nondurables increased over August. The largest gains were recorded in petroleum refining and utilities.

Oil allowables were kept at their maximum rates for November in the district's two largest producing states, Texas and Louisiana. Nevertheless, demand for petroleum continues to outpace domestic production and imports are being depended upon to close the gap.

Recent indicators of consumer spending were mixed. Sales of department stores continued to show monthly and
year-to-year gains through October. Among the four largest metropolitan areas of Texas, Dallas and Houston recorded the most substantial gains. The rate of new automobile registrations in these four centers, however, declined from the rate of a year ago. San Antonio was the only major area to post an increase over last year.

The value of construction contracts awarded in the district fell slightly in September as residential and nonbuilding construction awards in the five-state area fell from their August levels while nonresidential building increased slightly.

Prospects for farmers and ranchers in the five district states remain bright. Total agricultural production continues well ahead of last year. Much of the increase comes from a larger cotton crop and the steady rise in cattle on feed. Farm prices also remain considerably higher than a year ago. The gains in both production and prices have combined to boost farm receipts in the first eight months of this year to a level 17 percent higher than in the same period a year ago.