Beige Book Report: Dallas
July 1, 1980
The economy of the Eleventh District continues to slide into recession, although the rate of decline appears to have slowed recently. Department store and new car sales continue to weaken but have posted slim gains in some cities according to survey respondents. New home sales have picked up slightly with the decline in mortgage rates, and many potential buyers are reported to be waiting for mortgage rates to decline further. Increased savings inflows have been reported for both banks and S&L's. Liquidity positions of S&L's have improved. Loan demands at S&L's and commercial banks remain soft. Manufacturing output continues to decline, and farm incomes are being squeezed by falling commodity prices and rising costs.
Sales at department stores in the Eleventh District continue to trend down but at a slower rate of decline than a month ago. Sales have firmed somewhat in Houston and Austin but remain lackluster in other major cities. Customers continue to buy selectively. Apparel sales are holding up well, while purchases of furniture and large appliances show signs of slight improvement. Retailers report inventories are not excessive and are stepping up promotions and price discounts, at the expense of reduced profit margins, to hold and expand market shares.
Unit sales of new cars and trucks remain well below the level a year ago but quickened in June from the May level. Recent sales have been helped by an increased availability of funds at GMAC and Ford Motor Credit Company. The number of auto loans are also up a bit at a number of District banks. Bankers report many inquiries for terms on auto loans, but most are reluctant to borrow at the prevailing 14.5- percent annual rate. The decline in interest rates has reduced inventory costs for dealers, but weak sales forced the bankruptcy of a major Dallas Ford dealer last month.
The outlook for residential construction has improved slightly. Inventories of unsold new homes are not excessive. Sales of both new and used homes have picked up slightly in the last two months with the decline in mortgage rates and increased availability of municipal bond funding in the District. Corporate relocations to this area also continue to bolster sales. However, the revival in home sales is not yet significant, as some home purchases are being delayed as many potential buyers anticipate further declines in mortgage rates. Prices are reported to be firm, with substantial discounts generally not available.
Liquidity positions of most S&L's in the District are much improved with a net Inflow of savings deposits and the low rate of forward commitments on mortgage loans. Mortgage demands are not as great as expected as many potential home buyers are waiting for further declines in rates. Although some survey respondents anticipate further significant reductions in mortgage rates, most indicated the 9.25-percent rate on 30-month CD's could prevent mortgage rates from falling below 12 percent in months to come.
Except for oil and gas and interim construction financing, loan demands at commercial banks remain soft. Most business borrowers have taken a conservative stance with respect to borrowing until the severity of the recession is known. Although auto loans have firmed slightly, demand for consumer installment loans at District banks is off a third from a year ago. Moreover, the rate of liquidation of installment credit exceeds the rate at which new loans are being extended, and applications for credit cards remain flat. Most respondents expect the current weakness in loan demand will lead to further reductions in interest rates.
Total production in manufacturing continues to sag. Such industries as lumber and wood, aluminum, tires, and rubber that supply the auto and housing industries have trimmed their workweeks, increased layoffs, and have scaled utilization rates down to as much as 50 percent of capacity. Production of major chemicals is down somewhat, but firm demand in export markets has prevented inventory buildup. Refinery runs are reduced to less than three-quarters of capacity due to sagging demand. Onshore storage facilities are full, and crude oil cargoes are stacking up in the Gulf of Mexico. The decline in total output in the District is being offset somewhat by increased production by suppliers to oil and gas, highway construction, and public utility companies. Manufacturers supplying these industries report large backlogs of unfilled orders and high rates of capacity utilization and are proceeding with plant and equipment plans. Several steel and oil field equipment manufacturers are benefiting from increased exports to Mexico's expanding oil industry.
Total employment is declining slowly. Employment in the construction and retail trade industries is up from a month ago, although the gains are far below the increase for the same period one year ago. Newspapers report no decline in the number of jobs advertised, but the number of lines purchased in their want-ad sections are reduced. An estimated 5.8 percent of the labor force is currently unemployed in Texas.
Despite a bountiful wheat harvest, farm incomes are being squeezed hard by declining prices and rising costs of fuel, fertilizer, and machinery. Loan carry-overs remain a problem in many areas, although most farmers have paid off last year's loans. Funds for agricultural loans are readily available. Production of crops and livestock in the District will be adversely affected if the current heat wave persists.