Beige Book Report: Dallas
August 5, 1980
The economy of the Eleventh District continues to expand slowly in the current recession. A survey of department stores showed little improvement in unit sales, while sales of new cars have picked up slightly from their previously very depressed levels. Some pickup in speculative residential building is underway, and nonresidential construction continues its relatively strong pace. Lending at most S&L's and commercial banks is showing slight response to declining interest rates. Manufacturing output is soft, with some improvement in orders from suppliers to the construction industry. Drought conditions are having substantial impact on agricultural production in the District.
Unit sales at department stores throughout most of the District remain lackluster, although stores in the Houston and Austin areas report increases from last year's levels. Credit sales are rebounding from the low level following March 14 but remains a smaller proportion of total sales than in the previous year. Department stores continue to rely heavily on sales and promotions to generate store traffic and move merchandise. Inventory levels are generally described as desirable, although a few retailers have excess stock where sales have not met projections. The outlook for the rest of the year is optimistic, with an aggressive sales push planned for the Christmas season.
New car sales in the District are still as much as 50 percent below last year's levels, but a few, dealers are reporting substantially increased sales in recent weeks. Foreign auto manufacturers have significantly expanded market share in the last year, but domestic dealers describe the sales of larger models as currently surpassing those of smaller cars. Dealers attribute the improved sales volume to the increased availability of funds and the lower interest rates on auto loans. Most inventories of new cars are lean, and dealers' floorplan costs have eased with recent declines in the prime rate.
While residential construction permits are 32 percent below 1979's level and many unsold homes remain on the market, recent declines in interest rates and improved home sales have led some builders to begin limited numbers of speculative starts in Dallas and Houston, while such activity appears considerably stronger in San Antonio and in the Rio Grande area. Commercial construction activity has offset much of the slump in the residential sector. The number of non- residential projects underway in the Eleventh District has declined less than 9 percent from last year's levels. Commercial and industrial building activity is strongest in the Dallas-Ft. Worth area, as well as in areas where the oil and gas industry is important. Nonbuilding construction for highways and utilities shows continued strength. Projects formerly shelved are being reconsidered as interest rate drops make financing more feasible.
Demand for mortgage loans at District savings and loan associations remains sluggish, except in Dallas-Ft. Worth, where lending is brisk. In the south of the District, mortgage commitments are 9 only percent below last year's levels, but much of this strength is due to loans for residential construction rather than the purchase of homes. Savings inflows are positive at S&L's, with most of the funds going into 30 month and jumbo certificates of deposit. With yields on money market certificates currently not competitive, 30-month CD's are attracting a rising proportion of savings. S&L's are reducing the high levels of liquidity recently accumulated by repaying advances from the Federal Home Loan Bank as well as attempting to increase mortgage lending. In Dallas, rates have moved up slightly from 11 5/8 to 12 percent in response to the strength of mortgage loan demand. Elsewhere in the District, the outlook is for lower rates on mortgage loans.
Loan demand at commercial banks remains flat, except for interim construction lending to the oil and gas industry. Consumer lending continues to be soft and is declining in some areas of the District. Consumers are expressing greater interest in auto loans, but many are not willing to pay the currently high rates.
Manufacturing output in the Eleventh District continues to slump, despite a recent rebound in orders from the construction industry. Utilization of capacity for most steel manufacturers remains at about 50 percent, while producers of aluminum, chemicals, and primary nonferrous metals foresee no changes in their currently low production levels. Oil refineries are at 75 percent or less of capacity, due to substantial inventory buildup in the Gulf. Suppliers of construction steel and air conditioning however, report a 30 to 50 percent rebound in orders from the low levels at the first of the year. Manufacturers of computers and other high- technology electronic equipment have had sales growth of 30 percent over last year's levels, while sales for producers of fabricated metals and machinery to the oil and gas industry have grown 25 percent from 1979. Inventories are lean for most of the District's manufacturers. Electrical companies report few problems in meeting demands created by the current heat wave.
The toll of the unusually hot, dry weather on the District's agricultural production is becoming substantial. Feedgrain output may be reduced by one-third or more, while livestock herds are being trimmed heavily in Southwest Texas to levels that dry grasslands can support. The impact on the District's most important crop, cotton, is not yet described as serious, although much of the crop is under stress and yield potential will decline rapidly if the current conditions continue. Approximately one-half of the nation's cotton acreage is in the Eleventh District.