Beige Book Report: Dallas
May 18, 1983
The District economy continues to show evidence of a recovery. Electronics and construction-related manufacturing is rising, but oilfield equipment production remains very low. The District drilling rig count is unchanged, but the U.S. count has been rising steadily. District retail sales slowed in April from March's surge, but auto sales are stable. The outlook for farm income has improved. Construction continues at a rapid rate, but material availability has begun to vary. S&L construction financing and mortgage lending remain high. Deposits and bank credit are both well above levels posted a year ago.
Construction is robust in the District. The first quarter saw a record number of single-family and multifamily housing permits. Apartment construction will probably decline later this year, in the wake of rising vacancy rates, but suppliers of construction materials expect high levels of single-family homebuilding through 1984. The square footage of nonresidential projects showed surprising strength in the first quarter. This sector is expected to remain healthy all year.
The availability of materials for homebuilding is mixed. There is plenty of lumber, plywood, and particle board, but sheetrock and exterior siding are in short supply. Because of rising demand from homebuilders and steady demand from commercial construction, suppliers may have to ration sheetrock until the third quarter, when new production capacity will come on line. The supply of exterior siding had been plentiful in the District, but it is now insufficient owing to increased demand from other regions. Prices of residential construction materials have generally increased since year-end, but they will remain at or below their 1978 levels.
Manufacturers in electronics report rising sales to businesses and consumers. Production of steel rose as distributors rebuilt low inventories. Manufacturers of insulation for commercial construction expect very high rates of capacity utilization during the rest of 1983. Output of oilfield equipment remains very low.
The number, of drilling rigs at work in the District states in the first half of May was slightly below April's weekly average. But several factors suggest that drilling may increase. The number of crews seeking potential drilling sites increased slightly in April. The recession appears to be over, and the price of oil is stabilizing.
Retail sales increased substantially in March, aided by an early Easter, but they rose at a much slower pace in April. Furniture and appliances are selling well, and inventories are generally at planned levels. Some stores are increasing orders to replenish stocks of consumer durables which were reduced during recent promotions. Retailers in District cities with diversified economies are optimistic about sales increases, but respondents along the Gulf and Mexican border expect slow sales all year.
Although recent shortages of more popular models have held down volume, new car sales have been stable since March, and they are much higher than a year ago. Inventories are low. Factory orders for some models are being returned unfilled. Dealers expect stable to increasing new car sales over the next few months, if discount financing continues. After special new car financing programs appeared again in April, used car sales slowed, but they picked up in early May.
Recent increases in some crop prices and widespread participation in the payment-in-kind (PIK) program have improved the prospects for farm profit margins this year. Agricultural bankers anticipate a declining rate of bankruptcies/liquidations during the rest of 1983, and they expect to be able to help marginal farmers stay in business another year.
Total deposits at the District's financial institutions continued to increase at a healthy rate in April and savings deposits were 154 percent above last year's level. MMDAs now account for 12 percent of total deposits. The first quarter's runoff of small time deposits and buildup of large time deposits continues.
In April, loans and securities at member banks were 16 percent higher than a year earlier. Bank loans grew slowly as firms' liquidity improved, and business loan demand at large weekly reporting banks remains sluggish. Real estate lending in April slowed from its first quarter pace, but it remains significantly above last year's level. Loans to consumers declined slightly in April.
S&Ls continue to fund residential construction and home purchase loans at a brisk pace. Most new residential loans are being packaged and promptly sold in the secondary market. Several S&Ls are losing money on new but unfilled apartments they built in joint ventures with developers. Increases in net deposit inflows have further improved S&L liquidity positions. Excess funds are being placed in short-term investments and federal funds. Recently, the first and second largest S&Ls and the fourth and fifth largest S&Ls merged, resulting in two associations with 114 and 110 branches, respectively. The 38th largest S&L in Texas applied to the Comptroller of the Currency for permission to open a commercial bank.