Beige Book Report: Dallas
November 14, 1979
The Eleventh District economy continues to expand sluggishly. Manufacturing activity is flat, although some nondurable goods industries report continued recovery from a first quarter decline in output. Auto sales are running well below a year ago with little recovery likely under the current tight credit conditions. Unit sales at department stores are also lackluster although maintaining an edge over a year ago. Higher interest rates are slowing loan demand only slightly, and banks are raising credit standards. Financial institutions caught by usury ceilings are bearing the brunt of the rise in interest rates.
Total factory output has been flat all year, with durable goods production declining and nondurable goods output on the rise. Demand for labor remains high with shortages of a wide range of skills persisting in large urban areas. The unemployment rate in Texas is 4.5 percent. There appear to be no major material shortages among manufacturers.
Primary metals and stone, clay, and glass remain among the strongest regional industries because of the high level of construction in progress. Furniture manufacturing is at a much reduced level from a year ago, while machinery output has recently shown signs of weakness. Printing and publishing is off slightly from a year ago. Area newspapers report no easing in the shortage of newsprint. The shortage was aggravated by disruptions in rail traffic. Newsprint inventories are currently running at about a seven-day supply compared to the desired 30-day supply. Despite the shortage, newspapers are expected to be able to meet the growing demand for advertising space as Christmas approaches.
Retail sales are mixed. Department store executives report that unit sales are running slightly above the level a year ago. However, to maintain that level of sales retailers are cutting prices and advertising heavily. Department store sales, although generally described as lackluster, are nevertheless ahead of many store executives expectations. Auto sales remain 20 to 25 percent below a year ago, despite strong sales of foreign models.
Retail inventories volumes are down from a year ago and are near planned levels for most goods. However, low apparel inventories prompted buyers from throughout the country to order heavily at the recent Dallas apparel market. Auto dealers are stocking approximately one-third fewer cars because of higher carrying costs and the decline in sales.
Sharply higher interest rates since October 6 are clearly affecting those financial institutions bound by low usury ceilings. Credit unions substantially reduced the availability of credit by increasing interest rates and limiting the size of loans. Conventional mortgages from savings and loan associations have once again all but dried up in Texas as the state's two and one-half month old floating rate has reached the maximum allowed by law. An interim legislative committee is currently debating alternative changes to the current usury law, but no action to raise the ceiling rate is likely before spring.
Demand for most types of loans remains high, but banks have tightened credit standards and commitments to lend are being made much more cautiously now than prior to October 6. Most areas of lending are experiencing a moderate slowdown in growth. Commitments to speculative residential builders, in particular, have taken a noticeable decline in recent weeks. Slower auto sales are contributing to a reduction in consumer lending activity. The high level of construction in progress within the District is keeping real estate loans outstanding from declining significantly.
Except for money market certificates deposit inflows are very sluggish at banks, savings and loans, and credit unions. Savings and loans are experiencing marginal net savings inflows, and credit unions report a sharp upturn in the number of deposit account closings. Money market certificates remain the major source of funds for banks and S&L's.