Beige Book Report: Dallas
September 12, 1979
Economic activity in the Eleventh District continues at the reduced pace of recent months according to Directors and businessmen. Sales promotions have helped boost auto sales in recent weeks. Deposit growth at banks is sluggish, and many savings and loan associations report net savings outflows. Mortgage lending in Texas is up slightly, but the availability of credit remains somewhat constrained by the state's new floating usury ceiling. Bank lending is at a high level, but the rate of growth appears to be down from earlier in the year. Manufacturing activity is flat.
Retail sales are improving following a two-month lull. Most of the gains are coming from improved sales of large cars that are heavily supported by advertising and price cutting. Most domestic auto dealers report sales are running at year ago levels. Excess inventories of large cars are slowly being reduced. Department store sales are described by most executives as recently improved, but they express concern that sales will weaken in coming months.
Buyers at the recent apparel market in Dallas were quite restrained in their outlook for clothing sales this coming winter and expressed concern that declining consumer sentiment would lead to a relatively weak Christmas sales season. Overall, new orders at the market were level with last year when adjusted for price increases.
Conventional mortgage lending activity in Texas is up slightly following the adoption of a new floating usury ceiling late last month. However, S&Ls in Texas continue hard pressed for loanable funds. The current permissible mortgage rate of 11 percent is about 1/2 percentage point below yields in the secondary market, limiting sales of mortgages by local S&Ls in the secondary market. In addition, S&Ls in the District report either very weak net savings inflows or actual outflows. FHA/VA mortgage lending is very strong. Mortgage rates of about 11 1/2 percent in Louisiana have met with much borrower resistance, and lending activity has not increased significantly since the lifting of that state's usury ceiling two months ago. Mortgage-backed municipal bonds are supporting lending activity in some Louisiana cities.
Bank lending appears to be growing at a somewhat reduced pace compared to earlier in the year as the rise in the prime rate is having a mild effect on loan demand. Commercial borrowing remains strong, while consumer borrowing is tapering off. Real estate borrowing generally remains strong in Dallas, Fort Worth and Houston although it appears to be easing somewhat elsewhere in the District.
Consumer goods industries are posting declines in output, while capital goods industries continue to show moderate gains. The slowing of retail sales of furniture and apparel is resulting in declining employment and output at the manufacturing level. Most furniture manufacturers report, however, that backlogs remain heavy while new orders are down slightly. Home furniture sales are slowing, but institutional furniture sales generally appear to be keeping pace with increased commercial building activity. One furniture manufacturer noted that thin profit margins are constraining new hiring. Material supplies are tight, and prices continue to rise rapidly. There appears to be no large buildup of inventories at the manufacturing level.
Capital goods industries generally report favorable outlooks. Some slowing of orders for heavy construction equipment is noted, but construction activity remains strong in the District, keeping production of equipment at a high level. New orders for mining equipment are strong with one major producer crediting the large expansion of uranium and lignite mining operations in South Texas for increased bookings. Large backorders of drilling equipment were reduced during the first-quarter downturn in drilling activity, and delivery times have been reduced substantially. Although new orders are once again picking up, there is some concern that the expansion of industry-wide capacity over the past several years may prove to be excessive next year, especially among drill bit manufacturers.
A buildup of inventories near the end of the distribution channel of petrochemicals is expected to lead to a reduction of petrochemical output early next quarter. Inventories at chemical plants remain lean. Several producers expressed concern that current plant expansions will be coming on stream just as new orders begin tapering off, resulting in excess capacity. Exports of petrochemicals continue strong as U.S. producers maintain a price advantage over the rest of the world. But some softening could occur as more European chemical facilities come on line.
A series of hail storms damaged approximately 600,000 acres of cotton in the southern High Plains of Texas in late August. Corn, soybean, milo, and sunflower crops were also affected by the storms. Total losses are estimated to exceed $100 million.
The out-of-control oil well in the Gulf of Mexico is a cause of much concern for fisheries, resorts, environmentalists, and property owners, and a substantial decline of tourist business has been reported.