Beige Book Report: Dallas
December 14, 1977
According to the Directors and businessmen surveyed this month, the economy of the Eleventh District continues to expand nicely. The unemployment rate fell to 5.3 percent in October—the lowest rate for the year. Preliminary indications suggest Christmas sales this year will be up sharply from a year ago. Residential construction remains strong, while nonresidential construction activity is making a year-end surge. But industry spokesmen predict a slowing in construction activity by mid-1978. The demand for home mortgages remains very active, but savings and loan associations suggest market demands will slow in coming months. Most petroleum refiners continue to put aside plans for plant and equipment spending until a national energy policy is established. Because profit margins have improved, the number of cattle on feed in Texas is up sharply from the level a year ago.
Department store executives indicate Christmas sales should be excellent this year. Thanksgiving sales were l4 percent above a year ago, end December sales may well top that rate of increase. Although consumers continue to be price and quality conscious and are making practical gift selections, many show a ready willingness to buy expensive gifts. The more popular selling items include major appliances and electronic television games. Although dresses and young men's apparel are selling well, sales of coats and sweaters have been slow because of mild weather. Inventories are at planned levels, and there appears to be little need for price cutting to move merchandise.
Residential construction remains strong in the Dallas-Fort Worth and Houston areas. A major home builder in Dallas reports his company has all the contracts it can handle through March. In Houston, about 5 percent of all single-family homes are vacant, and the vacancy rate for multifamily units is a thin 1 percent. In other areas of the District, reports are mixed. Construction of single-family homes in El Paso has slowed because of a rise in the inventory of new unsold homes. However, housing sales remain good, and the current lull in home building should be short lived. In San Antonio, construction of single-family units remains active while multifamily unit construction remains weak.
Nonresidential construction in Texas has picked up substantially since midyear. The growth is broad based in the construction of shopping centers, office buildings, warehouses, and manufacturing facilities. Construction of shopping centers is increasing at a fast pace in most urban areas within the District. The demand for new office space in downtown Houston continues strong. The construction of that city's tallest building is to begin this month. Construction of warehouses is also active, and the manufacturing industry that currently appears to be building new production facilities at the fastest rate is the electronics industry.
Shortages of labor and materials continue to hamper overall activity in the construction industry. The supply of labor remains especially tight. Material shortages are being managed by careful planning and by placing orders well in advance of project startup dates. Prices of most materials continue to climb. The price of cement, for example, has increased 15 to 20 percent during the last few months. Lumber prices, however, have declined to the level that prevailed in late summer.
Savings and loan associations report continued strong demand for mortgages for new homes and renovation of old homes. However, an easing of mortgage demand is likely to develop in the spring if the anticipated slowness in the current construction boom materializes. In the meantime, mortgage rates are expected to remain near present levels. Some S&Ls report a substantial slowing in savings inflows, but most indicate that sufficient mortgage funds are available to meet demand. Savings and loan executives still do not anticipate having problems with disintermediation. S&Ls have approximately 75 percent of their savings capital in long-term certificates of deposit. And if there is going to be disintermediation, it will affect the short-term savings accounts and not the long-term certificates of deposit.
Demand for petroleum and other refined products continues to increase, but production is only slightly higher than a year ago. Refining capacity shows few signs of growth. Refiners point to unresolved economic and political issues, especially the Administration's announced energy program, as creating uncertainties that make current expansion plans more speculative. The only plant expansions that are currently underway are by small specialty refiners.
Cattle feeding in Texas has increased sharply in recent months in response to improved profit margins. The number of cattle on feed in November was up 11 percent from a year earlier. Placements have considerably outpaced marketings, and feedlots, on average, are currently at about 85 to 90 percent of capacity. Current costs of gain are 36 to 38 cents per Pound. And with slaughter cattle prices at 141 to 142 cents per pound, profits are averaging $35 to $140 a head. As a result, banks in the cattle feeding areas are experiencing strong loan demand. Placements in the next few months are likely to remain high as feeding costs should continue to be favorable. In addition, poor winter grazing could move more cattle to feedlots, and cattle prices are expected to increase further by spring.