Beige Book Report: Dallas
January 28, 1981
Economic activity in the Eleventh District is improved since our December survey, and most respondents express optimism about prospects for business in 1981. Department store sales have slackened somewhat since Christmas, and new car sales have risen slightly. Increased production of durable goods leads the rise in factory output, and drilling activity continues at a record pace. Nonresidential construction is running at a high level, while the rate of housing starts has weakened further. S&L's are making few mortgage loans, but business loan demand continues to expand at commercial banks. The increase in the minimum wage has had little immediate impact on employment or prices.
Dollar sales at District department stores surged in the week before Christmas to produce real growth for the last half of December. Their growth slowed during the January clearances, probably falling below the rate of inflation. Outlets along the U.S.-Mexico border report significant increases in sales to Mexican nationals. Credit- card purchases rose slightly before Christmas but have dropped back since. Retail inventory levels are considered to be manageable by most respondents. In light of high interest rates, merchants have been conservative in placing orders for new merchandise.
Although sales of new cars are slightly higher than in December, they remain well below their level a year ago. Auto dealers report high inventory levels of most models. Floor traffic is growing, however, and that leads some respondents to believe sales will improve.
Production in manufacturing is expanding. Demand for oil field equipment continues to boost production of machinery and metals products. The backlog of orders for offshore drilling rigs has more than doubled in the past year. The time required to deliver drilling rigs and other oil field equipment has stretched out to 14 to 24 months from 12 to 18 months a year ago.
The drilling boom shows no sign of cooling. The number of rigs working is up nearly 30 percent from a year ago. Although tight supplies of rigs and drill pipe are restricting expansion in some areas, the biggest pinch is a shortage of skilled labor. Shortages of petroleum engineers, geologists, landmen, and geophysicists may persist for four or five years, according to industry sources.
The rate of homebuilding is slowing as high interest rates continue to discourage borrowing for interim construction loans and mortgage loans. Some cities also attribute the slack demand to reduced rates of immigration and corporate relocations. The number of unsold homes is edging up, but builders report that inventories are not excessive. Housing sales in 1981 are likely to be somewhat higher than one would anticipate considering usual market factors, because many cities across the District are selling mortgage bonds to help middle-income earners finance purchases of single-family homes.
High interest rates are failing to discourage starts of large commercial construction projects, although the rise in starts of smaller projects is slowing. Construction of office buildings continues at a fast rate, even though leasing activity has abated in some areas.
Commitments for mortgage loans remain low at District S&L's. Many large associations offer only mortgages with variable interest rate provisions. S&L's report a large increase in the number of NOW accounts. Survey respondents indicate most of the initial balances in NOW accounts came from deposits at their own associations. The size of the average NOW account is growing and is expected to level off once customers complete the transfer of other funds into NOWs.
The rise in the volume of loans at District banks continues to be spearheaded by demands of the oil and gas and transportation industries. Consumer loans are growing slowly, although many banks report increased demand for home improvement loans. Ranks report a large shift out of ATS accounts into NOW accounts.
The January 1 increase in the minimum wage caused layoffs of a small number of unskilled workers. Some of those workers will likely be rehired in coming weeks. Firms employing a large share of low-wage earners indicate they will take two to three months to assess the impact of the minimum wage increase on their operations. Most will attempt to pass on the increased cost in higher prices rather than lay off workers.