Beige Book Report: Dallas
August 11, 1981
The Eleventh District economy continues its expansion. Wage and salary employment increased in June, manufacturing output is rising, and the pace of construction is holding. Total loans and deposits are up at commercial banks, but deposits show a slower rate of increase. Lending at S&Ls is slow as deposit losses continue. Department store sales have increased in the last month, but their growth is slightly below retailers' projections. The level of automobile sales is unchanged from last month's. The air traffic controllers' strike is not significantly affecting economic activity in the District, but airlines do not expect to recover their losses this year. Agricultural conditions are little changed from last month, except that farmers are facing higher interest rates on agricultural loans.
The demand for labor in most industries has remained firm. Employment rose from May to June in all major industry groups, and the Texas unemployment rate returned to the neighborhood of 5% in July after spending a month above 6-1/2%. Nevertheless, employment in electrical equipment, apparel, textiles, and food preparation are below year-ago levels, as sales of semiconductors remain low and some small garment manufacturers have closed.
In manufacturing, output is rising, inventories are tight in most industries other than refining, and production cost increases are moderate. Oil and gas drilling and arms purchases by the U.S. and other nations are the main sources of growth. But sales to commercial buyers of aircraft and some electrical equipment are also holding up well, and chemical and steel manufacturers report increases in new orders. Although steel producers have fairly high rates of capacity utilization and low inventories, orders had been low the past two months. Chemical producers report they have been passing cost increases through to buyers more quickly, and they attribute the modest rise in new orders to inventory building by their customers.
The pace of construction in the Eleventh District is little changed from last month. The strength of commercial construction shows few signs of slowing, and the depressed rate of housing starts persists. Most residential building is apartment and condominium construction. Prices on heavy, municipal, and utility projects are described as extremely low, held down by increased bidding from firms in other regions.
The growth of total loans at commercial banks is up since May. Respondents attribute the growth in loans to strong demand from mining and related industries and commercial construction. Consumer lending is up slightly after the decline in May that was precipitated by the rise in usury ceilings in Texas. The increase in total deposits is small. Demand deposits are declining slowly, while time and savings deposits continue to increase at a moderate pace. Respondents describe the growth of NOW accounts as slowing. Bankers in international finance are aware that the increased foreign exchange value of the dollar is affecting trade with other countries but describe its effects as difficult to single out.
Lending at S&Ls is curtailed as the loss of deposits continues. Migration to the District is supporting the limited number of closings of first-lien mortgages. Respondents at S&Ls report withdrawals from passbook as well as six-month money market certificate accounts. The use of retail repurchase agreements to bolster earnings is slowly increasing. Liquidity is above required levels but is down from the levels maintained at the beginning of the year.
Nominal sales at department stores are up 15 percent from year-ago levels. This represents a 1 percentage point rise in sales growth from June. Respondents at department stores describe sales as slightly below projections, resulting in larger inventories and more markdowns than anticipated. But inventories are not a source of concern, and the outlook for department store sales is good.
The pace of auto sales is about the same as last month. Respondents report adequate traffic at dealerships but low sales of new cars. Most purchases are financed by manufacturers' credit companies. Sales are not expected to strengthen significantly this year. Used cars are selling well, but sales volume has been held down by low inventories.
The initial impact of the air traffic controllers' strike is lessening, but airlines will not be able to recoup the resulting losses this year. Airlines are flying an average of 80 percent of their usual flights, up from 70 percent last week. Passenger loads were as low as 35 percent of capacity after the strike began (50 percent is considered the breakeven point), but airlines report that the number of reservations is rising. The Dallas Chamber of Commerce and the World Trade Center report no losses of attendance at recent conventions and wholesale markets. The volume of summer traffic—traditionally a seasonal peak—was low before the strike began, and airlines begin their reduced fall schedules soon. Regional airlines will probably withstand losses better than the trunk carriers because of their more efficient planes and route structures.