Beige Book Report: Dallas
October 10, 1979
The economy of the Eleventh District continues to expand at a moderate pace. Recent gains in auto sales have bolstered retail sales, although department store sales are lackluster. Nonresidential construction activity continues to be a major area of strength in the District economy, while residential construction remains below year ago levels. The pace of lending activity at banks is essentially unchanged from recent months. Manufacturing output is on the rise with nondurable goods industries showing recent improvement.
Retail sales are advancing on the strength of improved auto sales. Rebates and price cuts account for the improvement and helped raise unit auto sales near the year ago level. As a result, dealer inventories have been substantially reduced. Department stores sales appear to be waning following the back-to-school sales promotions. Real sales are lackluster and are about even with the level a year ago.
Nonresidential construction activity remains at a high level throughout the District. Construction of office buildings, hotels, and shopping centers appears to be well ahead of last year in most urban areas. Activity is especially robust in Dallas and Houston where many projects are well on their way to completion, and many more are scheduled to begin. Hotel construction accounts for much of the activity in Fort Worth's downtown area.
Most of the large increase in new office and retail space has been leased in advance of completion, leaving rental markets firm. However, some softness in the rental market for retail space is noted at small shopping centers in Houston. And there is some concern that some weakening in the office rental market may occur in Dallas after all the projects planned are completed.
Residential construction activity and sales of new and existing homes are down approximately 15 to 20 percent so far this year compared with last year. Several cities, however, recently posted gains in the number of housing permits and sales. Most builders generally expect sales to decline moderately through next spring. Inventories of unsold homes are holding steady at the second-quarter level and remain within manageable limits.
Construction activity continues to keep prices of building materials rising. Structural steel prices are up approximately 20 percent from a year ago, lumber prices are up approximately 25 percent, and cement prices are up about 11 percent. One exception is plywood prices, which are down approximately 40 percent. Lumber wholesalers attribute the decline in plywood prices to increased mill capacity and to slack demand for pulpwood which competes for timber with plywood mills.
Mobile home manufacturers report a continuing high level of shipments. Sales, however, do not appear to be benefiting significantly from higher prices for conventional housing and the tightening in mortgage markets. Manufacturers are concerned that mobile home financing will soon get tighter and cut sales.
High interest rates have not significantly slowed real estate borrowing at District banks. Interim construction loans, for example, remain among the strongest areas of lending activity. High interest rates, however, have slowed mortgage warehousing activity as mortgage bankers face negative spreads between the yields on the mortgages they sell and the rates they must pay for short-term financing.
Lending activity at District banks remains strong in most other loan categories, although the rate of growth has ebbed to the slowest pace this year. Loan demands by customers outside the District remain weaker than regional demands. Several bankers have expressed concern over unfair competition from foreign banks. They cite the ability of these banks to undercut prices because of differences in regulation.
Preliminary results from our latest survey of agribankers indicate the financial positions of District farmers are much improved from a year ago. The improvement is attributed primarily to larger crop yields and higher grain prices. Although farm loan demand remains strong, bankers report fewer loan extensions and an improved rate of loan repayment over the same period last year. The rise of interest rates nationally to levels above usury ceilings on loans to unincorporated businesses in Texas and New Mexico is substantially restricting some farmers' and ranchers' access to credit.
Manufacturing activity has recovered from a first-quarter slump and is now growing at a moderate pace. Production in nondurable goods manufacturing, which fell sharply during the first quarter, is making a strong recovery although output is still below the peak in last year's fourth quarter. Durable goods output is at a high level but is showing very little growth.