Beige Book Report: Dallas
August 7, 1979
Signs of a slowing economy continue to appear in the Eleventh District, but most Directors and businessmen think the Southwest will be affected only mildly by recession. Retail sales are lackluster as auto and department store sales remain largely unchanged from last month. Manufacturers report further sharp increase in production costs and slower output growth. Mortgage lending activity is slow but is likely to improve following easing of usury ceilings in Texas and Louisiana. Lending activity at large banks continues at a brisk pace, but rural banks report slower loan demand.
The effects of the gasoline shortages, declining consumer confidence, and shrinking real incomes are all combining to hold down retail sales according to respondents. Modest gains in large car and recreational vehicle sales are noted, contributing to a small increase in unit sales in recent weeks. Small cars remain in short supply. Year-to-year gains in real department store sales are small but steady, although unit sales of home furnishings and apparel are slowing.
Tourist trade in District resort areas is returning to more normal patterns following an easing in the gasoline shortage. Amusement and recreational establishments currently report good attendance levels. South Texas trade is being enhanced by a growing number of tourists from Mexico.
Manufacturing activity generally continues strong, with cost increases of greater concern to most respondents than a drop in sales due to the recession. Reports of large increases in labor, material, and transportation costs are widespread. Although most manufacturers expect some slowing in their own industries nationally, they expect the overall impact to be milder in the Southwest. Aluminum producers in the region continue to expand capacity as demand strengthens. Output is being sold on an allocation basis, and the backlog of orders is growing. The strong growth in the region's aircraft industry is contributing significantly to demand. Demand for steel appears to be off slightly from a year ago, but production at District plants remains at a high level. Producers report less foreign competition and greater demand for steel products from foreign buyers. A few respondents report a runup of fabricated steel inventories. The smelting and refining of cooper, zinc, and lead appears to be on the upswing, and demand continues to improve.
The number of active rotary rigs continues to increase, but remains well below last year's peak. Gains are lagging in East and South Texas where natural gas remains in surplus. Drilling activity in Oklahoma is slowed by a lack of drilling prospects. Rigs capable of drilling deep and offshore wells are in strong demand.
Heavy rains from tropical storm Claudette caused some damage to rice and soybean crops, disrupted transportation, and significantly slowed residential construction activity in the affected coastal areas. The full extent of the damage to agricultural crops is not yet known, but preliminary estimates place losses at $26 million. Railroads are turning to normal after minor disruptions of service.
New and used home sales appear to be down 20 to 25 percent from a year ago in many areas of the District. The value of residential construction contracts in the four southwestern states is down about 8 percent from a year earlier. The value of nonresidential construction contracts in the first several months of 1979 is approximately 15 percent ahead of the same period a year ago. Builders note some recent softening in the nonresidential market although much strength remains. High materials and financing costs are said to be contributing to the recent slowing in activity.
Mortgage lending activity by savings and loan associations in Texas remains slow prior to the lifting of the 10-percent usury ceiling on August 28. The availability of mortgage credit will improve substantially after that date, and mortgage lending is expected to increase significantly. However, the amount of new mortgage commitments lenders are making at the higher interest rates permitted with the new ceiling show only moderate increases over the level of commitments made in recent months. Mortgage lending has improved somewhat in Louisiana following the raising of its usury ceiling to 12 percent on July 6 although borrower resistance to the higher mortgage rates was much stronger than lenders had anticipated. Net new savings at S&L's continue to improve but remain slightly below the volume of last year. S&L's have lost a large segment of MMC's to banks since the elimination of their 1/4- percentage point advantage.
Bank lending activity continues at a fast pace. Many banks report some recent easing in the rapid pace of consumer and real estate lending. The demand for auto loans and interim construction loans on multifamily projects is down slightly from the levels of recent months. Deposit inflows continue to make moderate gains.
Our July survey of agribankers indicates that agricultural credit conditions are easing in the District. Although the supply of loanable funds remains tight, bankers report a slowing of loan demand growth, higher rates of repayment, and fewer renewals or extensions of agricultural loans. The improvement in the financial condition of many farmers and ranchers in the District is due to above average wheat yields and higher grain and cattle prices. A large number of respondents noted that Small Business Administration and Farmers Home Administration loans continue to play an important role in meeting the credit requirements of area agriculture.