Beige Book Report: Dallas
October 13, 1976
The economic recovery in the Eleventh District has settled back to a lackluster pace. The growth in total employment has been relatively flat since June, and with a faster rate of growth in the civilian labor force, the unemployment rate has increased to 6.6 percent-the second highest level this year. Industrial production in Texas continues to edge up, but largely because increases in drilling and crude oil production are offsetting declines in manufacturing. According to this month's survey, residential construction remains strong, and the prospects for commercial building next year have brightened. Curtailments in natural gas supplies this winter should not seriously affect economic activity, and the demand for agricultural loans has strengthened as farmers defer marketing grain in anticipation of higher prices.
Residential construction in the District continues to be strong, and a majority of the home builders surveyed expressed optimism about the overall outlook in coming months. Housing starts in Texas are at the second highest level this year, and construction employment rose by 700 workers in August. Residential builders in Dallas and Houston report that they are actively recruiting labor from outside the state. Most respondents feel that employment prospects in the industry will continue to show improvement.
Most of the home builders surveyed think that sales of single-family homes are good. An El Paso contractor reports that sales are "unbelievable" and that his only problem is a shortage of lots. The prices of most homes are rising moderately as demand strengthens and construction costs climb. Most respondents believe housing inventories are about normal for this time of the year. In Houston, however, a recent study indicates that the inventory of completed but unsold homes in that city is growing, as sales have begun to lag behind new housing starts. Texas home builders familiar with the recent housing lotteries in Southern California do not see any prospect for lottery sales here. They cite the greater availability of land for development and a larger number of home builders supplying the Texas housing market as primary reasons why the demand for new homes can be met fairly easily.
Multiple-family construction in the Eleventh District is improving slowly. Apartment occupancy rates in major Texas cities are high, ranging from roughly 90 percent in Dallas to 96 percent in El Paso. The majority of the apartment builders surveyed indicate that the current level of rents is not providing them with the incentive to build at a faster pace. They report that the fast rise in utility rates and their general inability, due to lease arrangements, to pass these rate increases on to tenants quickly is a major constraint on the expansion of apartments. A Dallas builder also feels that the recently enacted tax reform bill could further dampen the incentive to build new apartment units.
Commercial building continues to be the weakest area of construction. A commercial builder in Dallas reports that construction financing will likely be tight the remainder of this year and that some new form of interim financing is necessary to stimulate industry growth. Almost all the commercial builders surveyed are optimistic about the prospects for increased construction activity next year.
A survey of mobile home manufacturers and dealers found that current sales are being hampered by stringent financing terms. All respondents cited a need for lower down payments and longer-term financing. Dealers in Houston, who are familiar with the new Veterans Administration financing program for mobile homes, indicate they feel the program will not significantly improve sales. Another Houston dealer cites a general unwillingness to handle Veterans Administration loans because of the large amount of paperwork and the long lead time necessary for approval of loan applications.
The outlook for natural gas supplies in the District states this winter is mixed. Louisiana, New Mexico, and Arizona may have curtailments in natural gas supplies much larger than the estimated 22 percent cutback that may be experienced nationwide. Curtailments in Texas and Oklahoma, however, are likely to be smaller than the national average. A survey of state utility agencies indicates that none of the states is expecting curtailments to significantly interfere with economic activity. Alternative fuels, such as distillate and residual fuel oils, should be readily available and can carry most industries for short periods of time.
Although higher production costs and increased farming and ranching activity have increased the demand for credit, most country bankers in the District report adequate funds available for agricultural loans. Deposits at commercial banks have increased substantially in the past year, and lower yields on alternative investment have released funds for farm and ranch credit. Moreover, correspondent lending activity can be further increased as loan demand at large urban banks is not growing as fast as it is at rural banks. And country bankers are still selling substantial amounts of Federal funds. However, a few agribankers, particularly in the large wheat producing areas of Texas, report very high loan-to-deposit ratios. Repayment of loans has slowed, and many loans have been extended as farmers have withheld wheat from the market waiting for higher prices.