February 9, 1977
Except for a few problem areas, business conditions in the Eleventh District continue to improve. The unemployment rate has declined to 6.0 percent, although total employment has also dipped slightly. Industrial output has not been seriously affected by fuel shortages or weather conditions, and the tight energy situation should spur drilling efforts. With the exception of nonresidential building, construction activity continues to strengthen. Savings and loan associations report that mortgage loan demand is expanding rapidly, and mobile home sales are on the rise.
Fuel shortages have not severely hampered business activity in the District because alternative fuel supplies have been readily available. The only weather-related work stoppages have been due to icy roads that prevented some workers on two days from getting to work in a wide area of North Central Texas and Oklahoma. Curtailments of natural gas used as a feedstock slowed production at a few chemical plants, particularly those that are supplied with interstate gas. But a bigger problem to the chemical industry is transportation bottlenecks that forced some production cutbacks. Frozen rivers halted barge shipments of such products as fertilizer and styrene, and ground transportation was unable to take up the slack.
Louisiana officials expressed concern about the possible impact of continuing severe weather. New Mexico has been little affected by the cold wave, but officials are concerned about their limited natural gas supplies should severe weather spill into their state. Efforts to allocate intrastate natural gas into interstate lines is expected to reduce supplies and raise prices in all District states.
Drilling activity in Texas, following the seasonal pattern, has been very strong, and the number of offshore rigs has increased in Louisiana. Industry experts expect 1977 to be a good year because the prospects of higher prices for natural gas may stimulate more exploration. The usual midyear downturn in rig activity may not be as sharp this year as in 1976. Wildcat activity, in particular, should be strong.
Residential construction continues to strengthen and appears to be one of the most vigorous areas of business activity in Texas. Housing starts in December were at the highest level since April 1974—with the exception of the spurt that occurred last September. One Dallas homebuilder is planning to boost starts by a fourth this year in Dallas, Fort Worth, and Houston. He also indicated that the number of sold, but not yet completed, homes had soared nearly fourfold from a year ago. Prices for new single-family homes are expected to rise 6 to 8 percent this year.
Multifamily construction shows signs of slow improvement. Apartment construction in Houston continues strong, and higher occupancy rates in El Paso have led to a renewal in apartment building. A San Antonio builder reported that high occupancy rates should stimulate some apartment construction later this year.
The pace of nonresidential building remains sluggish. Demand continues weak with increased competition by builders for the declining level of business. A commercial builder in Dallas indicated that profit margins are under steady downward pressure due to ever-increasing costs. Most builders, however, expect a moderate pickup in activity this year as various planned projects get under way.
Nonbuilding construction is gaining momentum, based largely upon the expanded building programs of Texas utilities. One large electric utility is planning to spend a record $38l million this year, and other utilities are also boosting their construction budgets. Additional spending may be forthcoming from proposed Federal public works programs, according to some builders. Highway construction continues to be the weakest area of building activity. But the prospects for future highway construction in Texas will be determined by a highway funding bill that is currently under study.
Some supply shortages may develop for lumber, brick, cement, steel products, plastic pipe, and wallboard with a strong expansion in construction activity. Materials that require a large energy input into their production may be the first to be in short supply. Greater use of insulation materials may also lead to shortages of those products. Residential builders in Houston and Dallas reported that shortages of construction labor have eased slightly.
Mobile home sales have strengthened considerably during the last several months. A Dallas manufacturer reported that double-wide units are selling well and expects shipments to increase a fifth this year. Higher prices for conventional homes are expected to turn more people toward the mobile home market, but a San Antonio dealer indicated that new mobile home prices are up sharply because of expanded Government regulations. Consumer financing has eased significantly as ample supplies of funds are being made available by S&Ls.
Savings inflows into Texas savings and loan associations continue to rise, but at a slightly reduced pace. However, S&Ls in Houston reported that savings inflows were very heavy in January. Interest rate reductions, lengthened maturities, the elimination of certain maturities, and increased minimum deposit requirements on some CD's by various S&Ls in Dallas and San Antonio have dampened the inflow of funds. The majority of respondents interviewed do not anticipate a lowering in regular passbook savings rates.
Demand for mortgage loans is expanding rapidly in some areas of Texas. Mortgage demand in Houston and El Paso has remained brisk. However, demand has also climbed sharply in Dallas and San Antonio. A Fort Worth S&L expects an increase in mortgage lending this year of 10 to 15 percent above last year. Mortgage rates on conventional loans currently vary from 8 1/2 to 9 1/4 percent. Most S&Ls expect mortgage rates to ease down a bit more before edging up by year-end.