Beige Book Report: Dallas
December 16, 1981
With the exceptions of the energy and nonresidential construction, signs of recession are becoming more widespread in the Eleventh District economy. Christmas sales are off to a slow start, and auto sales remain at a low level. Manufacturers indicate new orders are declining, some production schedules are being pared, and the number of layoffs is rising. The recent decline in interest rates resulted in small increases in housing sales and mortgage demand. The rise in bank loans is largely energy related, and consumer loans continue to decline. Deterioration in farm incomes is cause for concern among agricultural lenders.
Christmas sales at District department stores are weak, and retailers have revised their forecasts downward. Credit sales as a proportion of total sales is about even with last year. Inventories are over plan, and advertising and price discounting are being used liberally to stimulate sales. Merchants hope a surge in sales during the week of Christmas, as occurred last year, will reduce inventory levels and boost revenues. Increased buying by Mexican nationals is bolstering retail sales along the Border. The seasonal demand for retail clerks is down from a year ago.
Auto sales are little improved from the low in October, and respondents expect negligible improvement in the near term. Imported models are selling slightly better than domestic new cars, and used car sales are described as good. New car inventories are high, and dealers expect it will take some time to work off current stocks.
District manufacturers report declines in new orders, and no significant strengthening is expected before spring. New orders have slowed for nonelectrical machinery, fabricated metals, and electrical communication and computing equipment. With sales weakening and inventories rising, firms in these industries are reducing production schedules, although most firms have not yet laid off a significant number of workers. Some oil field suppliers report a slowdown in new orders, but output still remains high. The demand for structural steel for nonresidential construction continues strong. Most manufacturers report small increases in materials and production costs.
The Texas Employment Commission reports a "fairly sharp" drop in number of job openings. But inquiries from job seekers in as many as 30 states are on the increase. The unemployment rate for the state is expected to rise this month from the 5.5-percent rate reported for November.
Nonresidential construction continues at a high level. With so much office space becoming available, prospective tenants are playing one developer off against another to get the best rental agreement.
Sales of new homes perked up slightly with the recent decline in interest rates and increased availability of subsidized financing by some builders. Respondents indicate further declines in mortgage rates will unleash demand for housing at such a fast rate that builders will not be able to keep pace. As a result, they expect housing prices to move up sharply.
Loan volume is rising moderately at commercial banks. Demand for funds is greatest by the mining industry, followed by nonresidential construction and retail trade. Consumer loans continue to decline, and credit card delinquencies are up slightly. Growth in demand deposits is outpacing the rise in time deposits. Sales of all-savers certificates have slowed considerably since October. Commercial banks are relying heavily on the Federal funds market to finance the growth in credit. IRA and Keogh accounts are expected to spur an increase in deposits in 1982.
S&Ls report small increases in mortgage loan demand and savings deposits. Respondents are generally optimistic, but expect no significant rise in mortgage lending until next summer. Demand for "all-savers" certificates is very low.
Favorable weather across the District has speeded crop harvests and improved winter pastures. Crop yields have been good, but prices are below early-season expectations and will not provide the income that many farmers need to cover costs. Banks and production credit associations continue to be concerned about the quality of their agricultural loan portfolios, although few expect significant problems in the near future. However, approximately 30 percent of FHA's 15,000 farm borrowers in Texas are delinquent in making loan repayments, and FHA contacts indicate that funding is unlikely to be adequate to carry all of these borrowers through another year.