November 10, 1981
Economic expansion in the Eleventh District continues, although at a slower pace. Activity in energy and nonresidential construction industries is moderating at a high level. Output of oil field equipment and apparel is high, but demand for other manufactured goods is weakening. Department store sales are weakening, auto and truck sales are off substantially, and residential construction continues to decline. Heavy rains in North Central Texas are resulting in crop losses. Loans and deposits are rising more slowly than last month. The all-savers certificate is causing time deposits to be the fastest rising category of deposits at commercial banks and stemming deposit outflow at S&Ls.
The pace of oil field activity is moderating, but record drilling levels are forecast for next year. Recent wet weather has slowed drilling in Texas and Oklahoma. Tight supplies of tubular goods are easing as foreign pipe mills with spare capacity are increasing shipments to U.S. oil fields. Prices for used drilling equipment are showing signs of softening. High wages in the oil industry continue to attract labor from other industries. For example, a Midland apparel plant closed after much of its work force found higher paying jobs in the oil fields.
Nonresidential construction remains strong, but the number of new projects announced is declining. A surplus of office space is anticipated in some urban areas next year. New housing starts are declining, despite rises in the number of townhouses and condominiums being built. Apartment occupancy rates are very high. Rents are increasing at rates from 8 to 10 percent per year and faster increases are expected.
The pace of manufacturing output overall is steady, but demand varies widely from industry to industry. Producers of oil field equipment continue to operate at full capacity and expect demand to remain strong through next year. Apparel manufacturers report record orders for deliveries next spring. Production of defense-related electronics and aircraft remains high, but a slowdown in orders for commercial aircraft is resulting in some excess capacity and layoffs in the industry. Output in refining continues to decrease, and producers of petrochemicals are cutting production in response to the declines in orders from the auto and housing industries.
Department store executives report a slowing in sales and expect little improvement for Christmas. Inventories are above plan, as current sales are below expectations and Christmas merchandise is arriving. Apparel is selling well, but sales of appliances and home furnishings are low.
Automobile dealers describe the drop in vehicle sales as "dramatic" and expect no significant turnaround before spring. Light truck sales show the sharpest decline. Fleet sales and sales of imports and used cars are also down. Inventories are above desired levels, and dealers are cutting orders for the remaining months of this year.
Heavy rains and flooding have caused crop losses in North Central Texas. Preliminary estimates of damage to cotton and wheat crops total about $25 million in a 13-county area. Slight damage in other areas appears to have been more than offset by the beneficial effects of increased moisture on pastures and crops.
The growth in loans at District banks and S&Ls is easing. Demand for business loans continues to be greatest in the energy and nonresidential construction industries and weakest in nondurable goods manufacturing and retail trade. The volume of consumer loans is declining, and the use of bank credit cards is below average for this time of year. Bankers anticipate widespread use of variable interest rates on consumer loans next year. Mortgage lending at S&Ls remains low.
Deposits at commercial banks are rising at a slower pace than in September. Growth is strongest in IPC time deposits and is attributed to the all-savers certificate. S&Ls report continued loss of deposits to money market mutual funds. The all-savers certificate is described as mitigating the pace of deposit outflows at S&Ls but is expected to have little impact on mortgage lending. Respondents at both types of financial institutions say the moderate growth in deposits in all-savers certificates is meeting their expectations and attribute about one-quarter of the growth to new funds.