Beige Book Report: Dallas
May 14, 1980
Evidence continues to accumulate to suggest the Eleventh District economy is sliding into recession. Department store sales adjusted for inflation are declining, and auto sales continue to deteriorate. Residential construction is well below the year-ago level, and S&L's report a continued net outflow of savings. Bank loan demand has softened perceptably. Factory output is leveling off, and production cutbacks and layoffs are reported in a growing number of industries. The brightest spot in the southwestern economy is oil field activities, which continue to expand.
Department store executives report real sales are declining as consumer buying is drying up in anticipation of a deepening recession. Nominal retail sales fell 2 percent in April. Credit purchases have declined as much as 20 percent below last year's levels, and cash purchases are not taking up the slack. An increasing number of customers are reported to be paying down their credit balances instead of purchasing new goods. Inventories have begun to bulge. As a result retailers are stepping up price discounting and are placing fewer new orders.
New car sales continue to decline. Sales of domestic models are estimated to be 40 percent below last spring. Demand for some models, particularly imports, remains strong but is restricted by high prices and a limited availability of credit. Dealers report closing only a third of their potential sales. Many dealers are pushed to their financial limits by the decline in sales and high inventory costs. Layoffs are on the increase, and several dealerships have closed in the last month.
Residential construction activity is 20 percent below the level a year ago, and no indication of a turnaround is in sight. Further declines in interest rates are expected to restimulate mortgage demand, and several cities are providing funds for home mortgages with municipal bond issues. However, builders indicate it will take an estimated nine months for the market to fully recover when the turnaround comes.
Most savings and loan associations continue to report net outflows of savings. Overall loan demand continues to decline as most customers remain priced out of the market. Demand for home improvement loans continues to increase, but a majority of associations do not offer such loans.
About one-half of the large monthly reporting holding companies and banks appeared to exceed the 9-percent growth in their March reports, but commercial banks generally report no problems in complying with the guidelines for loan growth. The situation has eased with the option of selecting a base period for covered consumer loans and an increased volume of loan participations. Loan demand by the energy and real estate industries remains strong, although the lack of long-tern financing has reduced the supply of interim construction financing by banks. Consumer loan demand is slowing and usage of bank credit cards is down significantly from a year ago.
While agricultural loans are readily available at District banks, bankers express concern over the ability of farmers to repay borrowings. Some loan carryovers from the last two years have been absorbed by federal programs, leaving banks in a better position to meet rising credit needs in agriculture. But rising production costs and falling commodity prices are creating concern over the outlook for farm credit.
While most District manufacturers continue to report high levels of capacity utilization and normal order backlogs, conditions are considered bleak for suppliers to the residential construction industry. Significant cutbacks in employment prevail in the fiberglass and aluminum extrusion industries, and more layoffs are expected in 30 to 60 days. Apparel manufacturers also report a rise in layoffs and factory closings. Producers of construction steel and cement are allowing attrition to reduce employment levels. However, the capital goods and defense industries are proceeding with expansion and hiring plans. The decline in autos and housing has put chemical producers in a squeeze. Shipments of chemicals are down, inventories are up, and prices of feedstocks are rising, reflecting the ongoing increases in prices of oil and gas.
Drilling activity in the District states is up a third over a year ago and at a 24-year high. Both major and independent oil producers are reported to be cutting back production levels to take advantage of preferential tax rates under the windfall profit tax.