Beige Book Report: Dallas
September 29, 1982
Economic signals from the Eleventh District are still mixed. Residential construction is returning to a healthy pace, but commercial construction activity is slowing. Renewed downward pressure on drilling activity is keeping overall manufacturing production low despite increasing defense expenditures. Loan growth at commercial banks is shifting from the business sector toward the consumer sector, and deposits at S&L's are growing. Retailers are cautiously optimistic about the fourth quarter even though current sales are weak.
Texas housing permits rose to a near-record high in July. The increase was concentrated in apartment construction as investors reacted to a tight rental housing market. Although single-family permits declined in July, they remained above year-ago levels and respondents indicate that new home starts picked up again in August.
Commercial construction activity is in what is expected to be an extended decline. Announcements of office projects, the bulk of nonresidential construction, are off sharply. Retail and industrial construction is climbing, but the value of these projects is comparatively small. The decline in nonresidential construction should be gradual since many projects will not be completed until late 1983 or 1984.
The unemployment rate in Texas declined to a seasonally adjusted 6.7 percent in August, down from 7.0 percent in June and July. It is suspected, however, that the decline is a result of unemployed workers leaving the labor force and misleading seasonal adjustment factors. Total nonagricultural employment fell 0.4 percent from July to August as the five major industries in durable goods production all registered declines.
The number of operating drilling rigs is still falling, and the seismic crew count, a leading indicator of drilling activity, has resumed its downward trend. Both the number and total footage of wells drilled fell for the second consecutive month. Low oil prices are decreasing natural gas demand. Thus, many energy companies are lowering their projected expenditures for exploration during 1983.
Production in the manufacturing sector generally appears to have stabilized at low levels. Most firms have already made the necessary cutbacks in production and employment. Petroleum refineries and chemical plants are operating at roughly two-thirds of capacity and are expected to continue at that rate. A sharp August drop in steel orders for commercial construction was partially offset by an increase in orders for residential construction. However, inventories of oil field equipment continue to climb. Conditions in the electronics and apparel industries are unchanged. Electronics sales are being supported by the defense industry, and orders for apparel products are less than the seasonal norm.
Outstanding loans at commercial banks in the District increased 1.1 percent in August, up from a sluggish 0.1-percent gain in July. Loan growth for the year-to-date is substantially above average. Business loans at large weekly reporting banks declined slightly for the first time in 15 months, due partly to lower inventory financing needs. Increases in consumer and real estate loans account for the major part of the increase in total loans in August. Total deposits at member banks were virtually unchanged as time deposit growth offset shrinking demand deposits.
Deposits at federally insured S&L's surged upward by 1.0 percent in July. The increase was led by a 4.9-percent jump in the dollar volume of CD's of $100,000 or more, although other nonpassbook deposits also increased. Total mortgage loans outstanding for construction increased 2.0 percent in July while nonmortgage consumer loans jumped 2.3 percent.
Department store sales were below expectations for August and appear to be falling off faster than usual following the back-to-school selling period. Sales were greater in August than in July. The dollar volume of sales is 4 percent ahead of last year at this time. Reorders of fall merchandise are low, and orders for the Christmas season are being delayed. Department store managers are trying to keep a reserve of "open cash" in case Christmas sales exceed current expectations. The recent devaluation of the peso has reduced sales in the Border areas substantially, and stores in San Antonio and Houston also report significant declines. In addition, some firms are wondering how to collect on outstanding debts owed by Mexican Nationals.
New auto sales dropped in early September despite factory incentives to dealers. The slowdown is evident in both domestic and imported models. As a result, inventories have begun to creep up again. Respondents attribute the sales decline to continued high financing costs and the imminent introduction of next year's models. Used cars continue to sell well, and demand for auto servicing remains high.