Beige Book Report: Dallas
August 10, 1977
The economy of the Eleventh District continues to grow with little evidence that the expansion will slow significantly in the next six months. Industrial production is gaining steadily in Texas, and despite the fact that total employment in the four District states has failed to grow as fast as expected, the unemployment rate has dropped to 5.4 percent. Department store managers report summer clearance sales have reduced retail inventories to seasonal levels, and most continue to be conservative in estimating sales volumes for the remainder of the year. New car sales remain strong. Residential construction activity continues to boom as mortgage funds remain plentiful, but builders indicate some markets could be overbuilt by next summer. Contracts for new chemical plants represent the biggest share of construction of industrial plants. Declining feed grain prices and drought conditions are contributing to an increase in placements of cattle on feed in West Texas. Summer tourist traffic is reported to be stronger than average.
Summer clearance sales have ended at most District department stores, and retailers term the sales "very successful" since inventories have been trimmed to normal levels for this time of' the year. Because inventory levels this summer were lower than a year earlier, price markdowns on sale merchandise were also less than last year. Retailers remain cautious with respect to the strength of sales for the remainder of the year and are keeping close control on inventories of fall and winter merchandise.
Although new cars continue to sell well, some dealers report that the recent hot weather slowed sales somewhat. A small number of sales in the Dallas-Fort Worth area are being financed with 60-month loans, but a survey of dealers and banks suggests that such loans account for well under 1 percent of all new cars sold. Most new car sales in Texas are financed on terms of 36 to 42 months. However, the proportion of new cars being financed for 48 months is increasing as these loans are more profitable than shorter-termed loans according to some respondents. Most auto dealers do not favor 60-month loans because they think buyers would be taken out of the auto market for such a long period of time.
The boom in residential construction in the District shows few signs of cooling. Demand for new homes remains strong, while high occupancy rates are stimulating construction of new apartments. Spot shortages of materials, labor, and developable land persist and are causing delays in completing some projects. To hold down construction costs—especially for apartments—living space is being reduced, but more amenities, such as bookcases and appliances, are being added to attract buyers and renters. With the continued increase in construction activity, a growing number of builders are predicting that some markets will be overbuilt in 12 months.
The rise in prices of new homes also continues to spur mobile home sales. Financing—largely by FHA and VA loans—is becoming more readily available in many market areas. In El Paso, for example, one lender plans to introduce 15-year, no down payment loans by yearend.
A survey of savings and loan associations in Texas suggests there are, on balance, ample mortgage funds to finance commercial and residential loan demand. S&Ls in the Dallas-Fort Worth area report a number of S&Ls outside the state are eager to participate in mortgage loans in Texas. The only area that reports a weak inflow of savings is El Paso, where S&Ls have been forced to borrow from the Federal Home Loan Bank to meet continuing strong mortgage demands. Almost all S&Ls note the cost of funds is increasing as maturing lower-priced CD's are being rolled over at higher rates. Despite the rise in costs, no large increases in mortgage rates from current levels are anticipated for the remainder of the year.
Plans have been announced for the construction of two more large industrial plants on the Gulf Coast. Construction of a $240 million pilot plant to test a coal liquification process and a $100 million low-density polyethylene plant is to begin next year near Houston. The chemical industry continues to lead in the dollar volume of construction of new industrial plants. One major company, for example, is currently budgeting $600 million annually for expansion.
Placements of cattle on feed in West Texas have increased, reflecting declining costs per pound of weight gain from low feed grain prices. In fact, placements have outpaced marketings since May, but feed lots are only at about 70 percent of capacity. Because costs of gain have fallen to as low as 34 cents per pound and because feeder cattle prices and fat cattle prices are about $40 per hundredweight, a small profit per head can be made. A further increase in placements is anticipated this fall because drought conditions have reduced forage conditions and hay supplies.
Tourism in Texas is better than average this summer according to reports received from around the state. Resort areas on the Gulf note a significant increase in visitors from the Midwest and Canada. Attendance at amusement parks in the state are also doing well, and two had record crowds on the Fourth of July weekend. Motel operators along the interstate highways report that "walk-in" traffic, families arriving without reservations, is up substantially.