The economy of the Eleventh District continues to expand with almost all major economic indicators showing greater strength. The only notable exception is the unemployment rate, which edged up slightly in May. Industrial production in Texas reached another record level in May, and the pace of construction activity picked up substantially. Sales of District department stores also rose further in May and June, and automobile registrations rebounded sharply from April's decline. A survey of major District retailers indicates that the price freeze has had little effect on their business operations.

The vast majority of the retailers surveyed felt that their sales, adjusted for seasonal factors, would be at least as strong in the second half of 1973 as in the first half. Moreover, the price freeze has so far had no effect on their sales. None of the retailers reported their current inventory-to-sales ratio as being abnormally low, and none reported any effort to take advantage of the price freeze to accelerate inventory buying.

The majority of the retailers also indicated that the current price freeze has had no discernible effect on their company's profit margin. Most of the remaining respondents reporting any effect felt that their profit margins are moderately smaller than they would have been without the freeze. The retailers, on the average, reported no change in the extent to which their customers are using credit in their purchases, and they noticed no change in the quality mix of goods their customers buy. The recent increase in commercial bank lending rates have not influenced retailers to use less bank credit. Almost all report no change in their bank borrowings as a result of the interest rate increases.

The seasonally adjusted Texas Industrial Production Index rose further in May, as gains were posted in all three major sectors. In manufacturing, the largest production increases occurred in petroleum refining, food and food products, primary metals, and stone, clay and glass products. Mining rose mainly as a result of increases in output of crude oil, and metal, stone and earth minerals. Utilities edged up only slightly.

With imports of foreign crude helping to ease the supply shortage, District refineries are turning out record amounts of gasoline. The gasoline shortage has not proven to be as severe as originally feared, although some companies warn that there may still be some local shortages due to distribution problems. A few municipalities, particularly Austin, continue to face energy shortages, as natural gas supplies have been curtailed.

Seasonally adjusted total employment in the five District states rebounded in May, regaining most of the loss of the month before. The labor force grew at a slightly faster pace than employment, however, causing the unemployment rate to edge up to 3.9 percent from April's 3.8 percent. Manufacturing employment remained unchanged, while nonmanufacturing employment rose slightly, as substantial gains were recorded in finance and services.

The value of construction contracts awarded in the five District states increased in May as residential building contracts rose to their highest level since August 1972. Nonresidential building rose only slightly, while nonbuilding construction fell from April. The cumulative value of contracts awarded through May was only 1.3 percent above the corresponding period last year, primarily due to the sharp year-to-year decline in nonbuilding construction.

Sales of department stores in the District continued to show substantial increases over the year-ago level in June. Cumulative sales for the first half of the year were 12 percent above the level for the corresponding period last year. The number of new automobile registrations for the four largest metropolitan areas of Texas—Dallas, Forth Worth, Houston, and San Antonio—rebounded sharply in May with particularly strong year-to-year increases in Dallas and Forth Worth. Cumulative car registrations through May were over a fifth higher than in 1972.

The agricultural outlook in the Eleventh District is favorable. Increased field activity has closed the lag in planting and harvesting created by the earlier bad weather. The wheat harvest in Texas is nearing completion with yields good to excellent. Oklahoma is also making rapid advances in its wheat harvest—although average moisture content continues somewhat higher than usual and protein content is down somewhat. Livestock conditions are generally good. However, the screwworm regulations governing interstate shipments of livestock were recently extended to include Arizona and New Mexico. This action was necessary because of serious fly spillover from Mexico into Arizona and to some extent into New Mexico.

The price freeze has caused serious distortions in both the livestock and poultry industries. Placements of cattle on feed have dropped significantly because of the squeeze between the cost of feeding cattle and the price received for slaughter cattle. As a result, spokesmen for the cattle industry expect a shortage of beef this fall. In addition, the latest production figures for Texas poultry are bleak, with Texas broiler egg sets down 15 percent in the last half of June from a year earlier. Dairymen, also faced with high feed costs, are reported to be culling their herds to eliminate marginal producers.