Beige Book Report: Dallas
September 30, 1981
Economic growth in the Eleventh District continues to be centered around energy and commercial construction. These two sectors account for most of the increase in business loans at commercial banks. Department stores and auto dealers report sales are proceeding briskly, but growth in consumer loans at banks remains sluggish. Durable goods manufacturers that sell in markets extending beyond the Southwest report considerable slack in production. Residential construction continues to slide, and S&L lending is extremely low. Lenders in agricultural areas are expecting a large number of carryovers this year.
Durable-goods manufacturing is expanding on the boom in output of oil field equipment. Production of durable goods that are sold nationally and internationally is considerably weaker. Steel manufacturers report much of their production is going into oil field equipment and nonresidential construction. However, they anticipate a decline in new orders from the construction industry in the fourth quarter. Orders for steel products from general manufacturing industries, already low, have declined in the last two months. A large manufacturer of hand tools reports a year-long increase in orders may have peaked in September as retailers have placed unusually small orders for Christmas. Producers of semiconductor and aluminum products report continued slumps in sales.
Housing is in critically short supply in such areas as Odessa, Texas, where drilling activity is booming. One major reason is that oil field wages are higher than construction wages. Some families have booked motel rooms indefinitely. The lack of housing has limited the expansion of oil field services and equipment manufacturing in such areas.
Construction of office buildings, warehouses, and shopping centers continues at a rapid pace. Many municipal projects, particularly water and sewage treatment plants, are under construction to accommodate the population growth in the Southwest. These projects continue to attract bids from contractors in other areas of the country. One municipality received 52 bids on one project, compared with the usual 6 to 8.
Loans at commercial banks are advancing at an increasing rate, and deposits are rising moderately. Energy-related industries and nonresidential builders continue to account for most of the growth. Respondents report the decline in the prime rate has temporarily dampened loan demands as some borrowers anticipate further reductions in interest rates. However, many bankers expect rates to remain high in the fourth quarter as a result of heavy credit demands by the U.S. Treasury. Larger payments resulting from higher interest rates are cited as the primary factor in the slow growth in consumer loan demand, but bankers also indicate they are not actively promoting these loans. Respondents report that delinquency rates are lower than expected, but they remain cautious because the number of bankruptcies is rising in some areas. Deposit growth is moderate and is concentrated in the higher interest-bearing certificates. Bankers indicate NOW accounts continue to grow slowly with all the funds coming from demand or savings deposits at their own institutions.
New housing starts are declining. Construction loan rates are a few points above the level acceptable to most builders. Most residential building is townhouses and condominiums. Lending by S&L's is almost at a standstill, and these institutions are experiencing continuing slowdowns or declines in deposits. When loans are made, builders often are having to assume some of the interest costs. There are some indications of increasing delinquencies and foreclosures. S&L's expect "all savers" certificates to be fairly popular but see funds coming only from their own depositors—passbook savings and 6-month money market CD's. At best, they view the new instrument as an aid to reducing deposit drains.
Back-to-school sales were strong at District department stores. Sales are expected to grow into the fourth quarter despite evidence of a slowdown in the first two weeks of September. Sales of soft goods are increasing rapidly; furniture and appliances are also selling well. Respondents report inventories are near desired levels, and no special promotions are planned.
Domestic auto sales are up in response to rebates and low interest rate financing programs. Dealer financing on 48-month contracts accounts for a high proportion of sales. However, dealers expect lower sales when these programs end and the higher priced 1982 models are introduced. Respondents report inventory levels are satisfactory.
A Director reports concern is still rising over the ability of farmers in Southwest Texas and New Mexico to repay their crop loans. Commodity prices for cotton and the grains grown in that area have fallen further, and many observers are now beginning to worry that an early freeze may hurt cotton production.