Beige Book Report: Dallas
April 14, 1976
With the exception of a few problem areas highlighted in this report, the economic recovery is progressing reasonably well in the Eleventh District. Evidence of the expanding economy can be seen in most labor market statistics. Total employment has increased by 100,000 workers in the five-state area in the past year, and the unemployment rate has dropped to 6.2 percent. Only in Oklahoma has the jobless rate increased, while in Arizona the rate has dropped 3.5 percentage points. In Texas, insured unemployment has declined 39 percent since last June. Moreover, initial claims for unemployment insurance are now at the lowest level since October 1974, The recovery in manufacturing in Texas is reflected by the extended workweek for production workers, which, at 41.0 hours, equals the annual averages for 1972 and 1973.
The only manufacturing industry in Texas that has not participated in the economic recovery is primary metals. Output by the industry has dropped nearly a third since September 1974, but the decline now appears to be leveling off. A survey of steel companies in the industry indicates most firms are hoping for a slow pickup in business later this year, but this outlook depends on the performance of two major markets—construction and oil field equipment. Some steel companies note the market for materials used in small residential construction projects has firmed. However, total output will not be affected substantially until nonresidential construction begins a comeback. But even stronger demand for construction materials may not help the steel industry because as much as three-fourths of the current production of some firms goes into oil field equipment manufacturing which is now beginning to soften. In addition, aluminum output continues at the low level established last summer.
Domestic drilling activity has taken a turn for the worse. After reaching a 14-year high in late December, the total number of active rotary drilling rigs dropped 16 percent to a 17-month low in March. A seasonal decline in drilling is expected in the first quarter of each year; but according to some industry spokesmen, the cutback was also in response to a rollback in the average price of domestic crude oil to $7.66 a barrel—down from the January high of $8.43. Many drilling contractors expect the decline to slow and drilling to begin a seasonal upswing in the last half of the year. However, the future is clouded by proposed legislation that is unfavorable to the industry. Despite the sharp drop in rig count, more wells were completed in the first quarter of 1976 than in the comparable period last year.
Multi-family construction in the Eleventh District remains severely depressed by high interest rates and rising construction costs. As a result, a growing shortage of apartment units, already acute in some District cities, has caused some major changes in the rental market. In Houston, for example, where the occupancy rate is 95 percent, tenant resistance to fast-rising rents, discontinuance of lease contracts, and payment of their own utility bills has become virtually nonexistent.
The tight rental market is, however, boosting the demand for new single-family homes. Sales of new houses are near record levels, according to a survey of the District's largest tract builders. Demand is strongest for homes priced under $30,000, and most are being sold to apartment dwellers. In addition, new developments are mushrooming in suburbs 15 to 30 miles from the central business districts because fears of gasoline shortages and the inconvenience of commuting have been overcome.
Custom builders specializing in more expensive homes are also experiencing brisk sales. Roughly half the new homes sold in Dallas this year have been priced over $40,000. And in El Paso, demand for homes costing more than $50,000 is the strongest in several years.
None of the builders contacted considered their inventories of
unsold homes excessive. In fact, a common response was that
inventories were "very low." In Dallas, for example, the largest
homebuilder said that there were 2,660 new homes on the market last
quarter and about 1,750 were sold. He considers inventories tight if
he carries less than a
six-month's supply of homes. Builders also
report that as a result of the short supply of homes, most recent
sales have been "futures"—houses not yet completed. And they have
responded to this bullish development by substantially increasing
their plans for additional starts.
Farm income in the Southwest will be higher this quarter than a year ago. Prices received by Texas farmers for all agricultural products are up 17 percent, on average, from last year. With higher average cattle and calf prices, total livestock receipts will be bolstered by increased marketing of cattle from feedlots and increased numbers of grass-fed cattle and calves slaughtered. Receipts from hogs, milk, and broilers may also rise. But total crop receipts—reflecting very weak rice and soybean prices—may remain near year-earlier levels.
Prices paid by farmers for most production items have increased 8 percent in the last year. Costs of feed, fuel and motor supplies, farm machinery, building and fencing materials, and farm supplies should continue to increase moderately, while irrigation costs in areas of West Texas and Eastern New Mexico will be significantly higher. Fertilizer prices, however, are below year-earlier levels, encouraging extensive application of crop land and improved pastures where adequate moisture is available.