Beige Book Report: Dallas
November 16, 1982
The District economy shows continued weakness in a number of areas, including manufacturing, commercial construction, agriculture, and department store and auto sales. However, the economic picture is not all bad. Residential construction appears poised for a significant upturn and auto dealers are expressing hope that declining interest rates will help revive their sales. Also, the rig count has been climbing, although seasonal factors may explain much of this reversal. Nevertheless, the economy is not yet showing clear signs of significant recovery.
The pace of residential construction is quickening. New single- family home sales and starts are up substantially, as are condominium sales. One Dallas area builder reported 52 new start orders in one week. Respondents point to the recent mortgage rate declines and the consequent increase in the number of qualified buyers as the reason for the surge in sales. Increases in new home prices are expected to be moderate for the next few months due to stable material and labor costs and declines in closing costs. Apartment construction continues to expand rapidly as new investors enter the market.
Commercial construction appears to be falling off faster than anticipated. The number of nonresidential building projects in Texas fell 42 percent from August to September, as more projects were completed than were begun. Office building vacancy rates in both the Dallas and Houston markets increased during the third quarter, indicating a growing softness in these markets. A vice president from a large Dallas bank reports that loan request volume for office projects is off 50 percent from last year as a result of the softening.
The employment picture in Texas darkened considerably during September. The seasonally adjusted unemployment rate jumped from 6.7 to 8.4 percent as employment in the durable goods manufacturing sector fell for the seventh consecutive month. A large part of the employment decline was concentrated in Houston where it is estimated that an additional 20,000 workers became jobless. The Border region also contributed to the increase in unemployment as 23.2 percent (unadjusted) of the Laredo work force was unemployed. In October, the Texas unemployment rate fell to 8.3 percent as employment and the labor force both grew. On a seasonally adjusted basis, the number of unemployed workers was unchanged.
Drilling activity may be starting to pick up, but it's too early to tell for sure. Both the Texas and U.S. rig counts increased the past few weeks, but it is unclear whether this is a result of recent increases in domestic crude prices or normal seasonal factors. The rig count usually picks up toward year-end as firms take advantage of the fast turnaround on tax writeoffs. Since the seismic crew count has not begun to increase yet, it's likely that the drilling increase is seasonal, and hence, may not last past the end of the year.
Manufacturing production levels are essentially unchanged. Refinery output is up slightly due to the normal seasonal increase in heating oil production. Steel firm executives indicate that the industry is running at roughly one-half capacity and expect this to continue through the fourth quarter. Electronics firms report some growth in semiconductor and consumer product demand. The latter is attributed primarily to increases in home computer sales.
Deposits at commercial banks increased a healthy 2.5 percent in September. Demand deposits jumped 4.9 percent and time deposits were up 1.6 percent. Both increases were above the seasonal norm. Member bank loans grew by 1.0 percent as business and real estate loans at large weekly reporters rose 1.7 and 2.1 percent.
Department store sales were slow throughout September and October. Dollar sales volume for the year-to-date is 2 percent ahead of last year, down from 4 percent on September 4. Profit margins are down as a result of increased promotional costs and price discounts. Respondents' expectations for the Christmas season are mixed, with some looking for a good season and others anticipating continued slow sales. Border sales are still depressed.
New auto sales have remained roughly constant since August. Sales have been slow since early summer. Inventories are up due to the addition of 1983 models to dealers' floor plans, even though orders are lower than normal. As a result, GMAC is offering 10.9-percent financing on all 1982 models, and Ford Motor Credit Company is offering l0.75-percent financing.
Texas farm income for 1982 will probably fall short of the 1981 level. Cotton production is expected to be 57 percent less than last year. At the same time, cotton and other major crop prices are well below 1981 levels due to large stocks, lower export demand and bumper crops nationwide. Livestock producers are faring a little better due to falling feed costs, but recent declines in beef and hog prices have erased much of the gain.