Beige Book Report: Dallas
June 23, 1982
Manufacturers are cutting production and employment in the Eleventh District. Inventories of oil field equipment are excessive and imbalances are expected to persist, although the number of active drilling rigs recently increased. Growth in business loans, which had been rapid, tapered off in May. Savings and loan associations report slower deposit outflows and increases in mortgage loan closings. The pace of commercial construction continues strong and housing starts are increasing. Department stores report moderate increases in sales, but sales at auto dealerships are down. Farm incomes remain depressed.
Texas employment increased in May, but the number unemployed continues to rise because of layoffs in transportation equipment, and energy-related manufacturing and in mining. Job losses in these industries are partially offset by employment gains in nonmanufacturing industries, particularly services. The number of inquiries from other states concerning employment possibilities is down from recent months.
The layoffs in mining reflect low drilling rates that have characterized the oil and gas industry for several months. But the number of drilling rigs operating in Texas increased slightly at the beginning of June, the first uptick since last year. Industry sources say that more time is needed to establish a trend. If drilling does increase, it is not expected to rise rapidly.
Faced with low sales and excessive inventories, District manufacturers are cutting output. Producers whose chief market is the petroleum industry have made particularly large cutbacks. Some of these firms anticipate that their inventory problems will last all year. Suppliers of commercial transportation equipment are also reducing production. Output of petrochemicals, apparel, and commercial electronics remains low. Petroleum refineries report rising production and capacity utilization. Firms that produce electronics for defense have large order backlogs but report a decline in the pace of new orders.
Commercial bank loans to businesses increased at a slower pace in May than in April, but the cumulative rise in loans this year to date is twice the average increase in the past five years. Loans increased for mining, services, petroleum refining, apparel manufacturing, and commodity dealers. The increases in loans to apparel manufacturers and commodity wholesalers were unseasonably large. Respondents at commercial banks attribute the rise in loans for mining to the takeout of previously committed funds by drilling companies responding to rises in gasoline prices. Loans to all other industries declined in May. The largest percentage decreases were for loans for construction and chemical manufacturing.
Deposits at commercial banks increased faster in May than in April. The cumulative rise in deposits this year is more than twice that of the past five years. A rise in time deposits more than offset a continued runoff in demand deposits and a fall in savings deposits in May.
The rate of decline in deposits at savings and loan associations has slowed since April. Mortgage loan closings are up moderately but remain below last year's levels.
The pace of commercial construction continues at a high level, and there are sufficient projects underway to sustain this pace for some time. But the cumulative square footage of new, additions, and major alteration projects for this year is well below last year's cumulative total, and the number of announcements of new projects is declining.
Housing starts are up strongly from April, but remain 14 percent below year-ago levels. Builders describe the current level of activity in some areas as a "profitless boom" because they are providing reduced interest rates and other incentives to buyers.
Department stores report moderate increases in sales from year-ago levels. Because of the unusual number of layoffs in Texas, they expect the pace of sales to change little this summer. Apparel sales are holding up well, but sales of home furnishings and appliances are slow. Inventories are trim, and price discounting and promotions proceed at seasonally normal levels.
New car dealers report that sales declined after General Motors' low interest rate finance program ended in May. Foreign car dealers said that this program stimulated comparison shopping at their stores. The last of this year's models will soon be delivered, and dealers expect inventories to be sufficient for a moderate pace of sales this summer.
Farm incomes remain low, in spite of rises in livestock profit margins. Prices for feed grains are 23 percent below year-ago levels, and heavy rains in May will further cut net revenues as farmers replant or absorb crop losses. Cattle prices are up as ranchers have cut back on the quantity of beef supplied to market.
The pace of commercial construction continues at a high level, and there are sufficient projects underway to sustain this pace for some time. But the cumulative square footage of new, additions, and major alteration projects for this year is well below last year's cumulative total, and the number of announcements of new projects is declining.
Housing starts are up strongly from April, but remain 14 percent below year-ago levels. Builders describe the current level of activity in some areas as a profitless boom because they are providing reduced interest rates and other incentives to buyers.
Department stores report moderate increases in sales from year-ago levels. Because of the unusual number of layoffs in Texas, they expect the pace of sales to change little this summer. Apparel sales are holding up well, but sales of home furnishings and appliances are slow. Inventories are trim, and price discounting and promotions proceed at seasonally normal levels.
New car dealers report that sales declined after General Motors' low interest rate finance program ended in May. Foreign car dealers said that this program stimulated comparison shopping at their stores. The last of this year's models will soon be delivered, and dealers expect inventories to be sufficient for a moderate pace of sales this summer.
Farm incomes remain low, in spite of rises in livestock profit margins. Prices for feed grains are 23 percent below year-ago levels, and heavy rains in May will further cut net revenues as farmers replant or absorb crop losses. Cattle prices are up as ranchers have cut back on the quantity of beef supplied to market.