Beige Book Report: Dallas
August 18, 1982
Economic indicators for the Eleventh District are mixed. The unemployment rate and manufacturing output are stable, but the drilling rig count continues to fall. Loan growth at commercial banks is down, but construction loans are up. Commercial and residential construction is stable, but housing permits are rising. Department store sales fell in July and auto sales are sluggish.
Texas' unemployment rate stabilized at 7.0 percent in June and July, up from 6.7 percent in May. The number of layoffs is down considerably from its peak two months ago, but new claims for unemployment insurance remain high. The Texas Employment Commission reports that unemployment is hitting workers in a much broader than normal range of professions. The Commission notes that an unusually high proportion of workers filing claims for unemployment compensation now come from firms that have gone out of business.
The situation in manufacturing is little changed, except for the reduction in the pace of layoffs. Large inventories and depressed new orders rates persist for manufacturers of non-electrical machinery and fabricated metals for the petroleum industry. Orders for construction steel are declining slowly, but backlogs are large and production stable. Electronics manufacturers are relying on military contracts to offset low commercial demand. Petroleum refineries are maintaining low, but stable production levels. Apparel manufacturers report smaller than anticipated orders for fall merchandise.
The number of drilling rigs operating in the District continues to fall from December's peak. A small rise, after eight months of decline, in the number of crews that explore for potential drilling sites could mark the end of the decrease in the rig count.
The growth of loans at commercial banks slowed in July, and deposits declined. Loan growth has been significantly above average for the year to date, but was slight last month. Loans to businesses at large weekly reporting banks increased an average of 2.0 percent each month this year, but rose 0.4 percent in July. Key lenders at large banks indicate that the financial condition of borrowers with outstanding loans is deteriorating, particularly in the energy industry and its suppliers. Credit requirements are tightening. Total deposits declined, in spite of the rise in time deposits.
S&L's are posting large rises in loan volume. Over half of the dollar amount is for construction, and S&L's prefer to invest in apartments and office buildings. Loans for home purchases are up modestly-increases that respondents attribute to the combination of seasonal factors and interest rate declines. The number of delinquent payments is up slightly since June. Liquidity is above required levels.
Respondents in the residential construction industry say the pace of building is stable. Construction should increase, however, as permits rose 27.9 percent for multifamily units and 10.5 percent for single-family homes in June from May's level. The combination of low apartment vacancy rates and an abundance of office space is helping to attract financing for apartment construction.
The level of commercial construction is high, and should be fairly stable into next year. The number of new projects announced is slowly declining, but exceeds cancellations of projects on which work has not begun.
Sales at department stores for the year to date are 5 percent above last year's cumulative levels but below year-ago levels for the month of July. Inventories have been tightly controlled, but price discounting of merchandise is greater than planned. Retailers are reducing their expectations for fall sales and canceling some orders placed with manufacturers. Sales along the Mexican border are significantly decreased after the recent devaluation of the peso.
Auto dealers attribute their slow sales to earlier rebate programs, interest rates, and high unemployment. Inventories are not excessive. Many would-be buyers are visiting dealerships but respondents expect little stimulus from the model changes in the fall.
Farm incomes are declining. Storms and disease have damaged the wheat and cotton crops, and bumper crops in the rest of the United States are depressing prices. Livestock prices are declining and energy and feed costs are rising. The volume of loans for agricultural production remains high as the pace of payments is slowing and many loans are extended.