Beige Book Report: Dallas
March 23, 1982
There is some indication that the recession is bottoming out in the Eleventh District, but the decline in crude oil prices has begun to dampen oil field related activities. Auto and housing sales and new housing starts are showing the initial signs of recovery. Commercial construction remains strong, but builders are becoming more cautious. A slowdown in new orders for drilling equipment may work against a revival of manufacturing output. Department store sales are keeping up with inflation, and business loans continue to outpace slumping consumer loans. Low commodity prices continue to depress farm incomes.
Domestic auto sales have increased significantly since January in response to manufacturers rebates. Dealers expect domestic models to continue to sell as long as rebates are in effect. In addition, gasoline prices, which have fallen as much as 15 cents per gallon since the first of the year, have helped improve sales of larger models. On the other hand, unit sales of imports have shown no growth. Inventories are down from the record highs of December and January, and additions to current stocks will closely follow sales in coming months.
Residential construction has perked up over the past two months with most of the increase centered on starts of apartments and condominiums. Sales of both new and existing homes are rising but remain well below year-ago levels.
Commercial construction is still robust, although the number of announcements of new projects is on the decline. The recession has tempered the demand for office space somewhat, and there is growing concern that many areas may become overbuilt. Securing permanent financing continues to be a problem, and lenders are demanding an equity share of a project as part of the lending agreement.
The drop in crude oil prices is contributing to declines in oil field related activities. At last count 2,596 drilling rigs were operating in the District states. That is down from a peak of 2,976 rigs in December, and 201 units fewer than a year ago. A decline is normal for this time of year, but the current setback is greater than had been expected. Nevertheless, industry analysts predict a turnaround this spring and the average number of active rigs this year will exceed the average count for last year.
Manufacturing output continued to trend downward slowly. Orders for oil field equipment are slipping. A number of refineries and petrochemical plants have shut down, and those still in operation are running at near record low levels. Downtimes for annual maintenance are being extended, and further plant closings are contemplated. Other manufacturers with national markets face weak demand for their products. Cutbacks in apparel manufacturing are causing many smaller contract plants to close down. However, the strength in commercial construction and the defense industry is holding up output in the steel and electronics industries.
The District labor market has deteriorated since December. Increased layoffs, plant shutdowns, and the in-migration of unemployed workers are contributing to the rise in unemployment. Still, the unemployment rate in Texas was only 5.8 percent for February.
Department store sales show no real gains. Sales of soft goods, especially men's wear and cosmetics, are doing better than sales of "big ticket" items. Tighter controls have reduced inventory levels since January. Credit sales are about even with last year, although payments are slower. The devaluation of the Mexican peso sharply reduced sales along the Border. Retailers expect higher sales in the second half of the year.
The dollar value of loans by commercial banks is increasing at a moderate rate. Energy production and exploration account for much of the gain. Both consumer and construction loans show net declines so far this year. Demand deposits have fallen since January, but time deposits have risen. IRA deposits have not grown as fast as expected, and respondents suspect that funds transferred from other accounts are a significant portion of the increase. Restrictions on the issuance of bank credit cards continue to be tightened, and bankers are considering instituting variable rates on these cards.
Mortgage lending at S&L's has picked up with the small gains in housing sales. "Builder buydowns" are helping to reduce interest rates on mortgage contracts. Lower prices for apartments and condominiums relative to prices for single-family homes has also stimulated loan demand. Delinquencies are up but are not considered high enough to be a problem.
Farm incomes continue to be plagued by depressed grain and cotton prices. Beef prices, however, are rising since the supply of feeder cattle has been cut to rebuild herds. Delinquencies on farm loans have climbed to dramatically high levels, and farm liquidations are above average. Set-aside programs have begun, but little near-term relief for farmers is foreseen.