Beige Book Report: Dallas
August 11, 1976
After slowing last spring, economic growth in the District appears to be progressing at a slightly faster pace. The decline in total employment may have ended, and home building and drilling activity are strong. Manufacturing output, however, continues to sag. This month's survey included banks, savings and loan associations, mobile-home manufacturers and dealers, and natural gas producers. Major city banks report slow growth in loan demand, but rural banks indicate that demand for agricultural loans is strong. Mortgage markets are tightening as demand for housing continues to grow. Sales of mobile homes are up, but financing is unavailable for most prospective buyers. The recent Federal Power Commission (FPC) order to raise interstate gas prices is expected to bring increased drilling, especially in offshore areas.
The growth in loan demand at major District banks is lackluster, although some bankers point to some recent improvements that may lead to a significantly higher level of demand by the year-end. Petroleum loans were reported to be strong, and several bankers reported "a slight trend" toward inventory building. Reactions to inquiries on consumer loan demand were mixed. Consumer installment loans and use of credit cards range from record levels to "only modest", and an increase in loan participations was reported by member banks of multibank holding companies located in Houston.
Agricultural bankers generally report demand for farm and ranch credit is strong. Farm machinery loans have increased because of higher prices for tractors, machinery, and equipment. And, as a result of large grain harvests, crop storage loans have risen, but loan demand for feeding cattle has weakened with fewer placements of cattle on feed.
A consensus of agricultural bankers in irrigated farming areas indicates that the demand for crop-operating loans is up sharply, largely due to increased costs. A banker in the Texas Panhandle area, for example, reported that crop production costs were up nearly a third from 1975 on most irrigated farm operations. High natural gas prices have substantially increased the energy costs for pumping water. In the intensive irrigation farming area around Pecos, one banker indicated that natural gas prices paid by producers are up 500 percent from a year earlier. And, coupled with higher prices for other inputs, irrigation farming has become expensive and risky. Bankers, therefore, are taking a close look at the repayment capacity of irrigation farmers.
Adequate funds, however, are available in the District for extending agricultural credit. And half of the agricultural bankers are seeking new farm and ranch loan accounts, even though loan demand has risen. Rural banks also report a strong growth in deposits from a year earlier.
Demand for mortgage loans at savings and loan associations in major District cities is strong, with one savings and loan association in Houston describing the market as the biggest in history. Loan applications for single-family homes priced from $40,000 to $50,000 are most numerous. In Houston, there is a strong market for town houses, as renters are finding it cheaper to buy than to pay escalating rents.
There appears to be no oversupply of single-family homes. In Houston, there is an acute shortage of improved building sites, and skilled building tradesmen are in short supply. Part of the shortage of lots is attributed to an average six-month delay of red tape necessary to meet the Department of Housing and Urban Development's (HUD's) standards in developing raw land.
After slowing in the second quarter, the growth in savings deposits expanded in July. One savings and loan association expected the rate of inflow of savings to slow for the remainder of the year, however, to about half the rate of growth experienced in the first half of the year. The growth in savings is now largely due to purchases of four-year 7 1/2 percent term certificates, followed by six-year 7 3/4 percent certificates and passbook accounts. Four months ago, passbook accounts led the growth in savings deposits.
"fantastic" demand for this type of housing. Sales are currently being supported by people who cannot qualify to buy single-family homes. The number of lenders has declined because many lost money on the "easy" financing terms they offered a few years ago, and those still in the market are much more selective in the loans they grant. One manufacturer stated a buyer must be "gold plated" to be granted a loan. According to one dealer in El Paso, sales could increase 1,000 percent if more financing were available. However, high insurance costs—as much as $80 per month for a $10,000 mobile home—have dampened sales in Gulf Coast areas.
Despite a court-issued stay of the FPC's recent order raising the ceiling prices on natural gas sold in interstate markets, a number of Texas gas producers expect the FPC to win a quick termination of the stay, even if the case is appealed to the Supreme Court. Once the new ceiling prices become effective, producers with contracts that allow price adjustments will file for higher prices. Drilling activity in the District—already fairly strong—should quicken, especially in Federal offshore areas of the Gulf where the greatest potential for significant new finds is believed to be. Idled deep-drilling rigs in west Texas should also benefit from higher prices. Gas explorers say they will now look more closely at prospective fields that were judged to be unprofitable at current interstate price levels.