Beige Book Report: Dallas
January 15, 1975
Industrial production in the Eleventh District continues essentially unchanged, as gains in energy-related industries have offset declines in most other sectors. A record-high rate of construction by utility companies, for example, has spurred orders for building materials such as structural steel and concrete pipe. One materials supplier, a fabricated steel manufacturer with plants in Dallas and Houston, reports a threefold increase in new orders in the past twelve months. Meanwhile, the boom in drilling activity continues. Manufacturers of oil field equipment—including offshore drilling platforms—are generally operating at peak capacity, while enjoying record sales and profits. Moreover, most of these firms continue to be deluged with new orders; backlogs in excess of two years are common. Attempts to increase production, however, are being hindered severely by shortages of both skilled and unskilled labor and steel products. Petroleum refineries are also pushing capacity. In Texas, crude oil refining has increased in eight of the past nine months and currently is running 8 percent ahead of a year earlier.
While companies engaged in supplying steel and fabricated metal products to energy-related industries are hard pressed to meet demand, firms supplying materials primarily for residential and commercial construction are experiencing cancellations in orders, production cutbacks, and layoffs. For example, the District's largest producer of prestressed concrete reports that several firm contracts have been canceled recently. The largest manufacturer of reinforcing steel bars indicates that shipments are off two thirds from last October, and production has been cut to four days a week as finished goods inventories have climbed to their highest level in two and a half years.
The apparel and textile industries—which account for nearly a tenth of all manufacturing jobs in the District—are experiencing a softening in demand. A survey of buyers attending recent markets at the Apparel Mart in Dallas indicates new orders are off as much as 20 percent. The decline in orders has resulted in some layoff of apparel workers and is forcing firms to trim costs in other areas. For example, to hold down finished goods inventories, many apparel manufacturers are accumulating a sizable number of orders before making production runs. Although fabric supplies are readily available, apparel firms are reluctant to build up materials inventories. Fabric purchases, therefore, are being made just before each production run.
Textile mills report that they began receiving cancellations in new orders in the early fall. However, production schedules were not affected until November, when workweeks were pared from six to five days. Further cutbacks were instituted by extending holiday vacations, and one mill is now closing down every other week so that employees can receive maximum unemployment benefits. In addition, construction of several new mills in Texas has been either delayed or canceled by the decline in demand for textiles.
Other industries, including electronics, paper, and transportation equipment, also are experiencing substantial reductions in new orders. Declining orders in the electronics industry, especially for semi-conductors, have resulted in the largest layoff by any District industry. A Houston producer of paper board reports that his company had a three-month backlog of new orders last October, but outstanding orders have now dwindled to one month's production. Producers of truck and utility trailers say that, in addition to a slowdown in new orders, they have had heavy cancellations of existing commitments.
Widespread production cutbacks have resulted in the increased availability of many industrial materials. In fact, large backlogs of copper and aluminum products forced three primary production plants to close in December. Chemicals and plastics are also more readily available, with one of the largest manufacturers in the District reporting that customers were taken off allocation last month. The improved supply situation has lessened the upward pressure on raw materials prices. Most producers report the cost of materials has leveled off. Moreover, prices of some items—including timber, copper, resin, reinforcing steel bars, and scrap metal—have, in fact, declined in recent weeks.