Beige Book Report: Dallas
August 10, 1983
The recovery in the Eleventh District is strengthening despite continued weakness in energy-dependent manufacturing. Industrial production in Texas has been climbing since last December. Residential and retail construction it booming. Retail sales are up in most major metropolitan areas, but sales in energy-dependent communities and along the Mexican border remain well below year-earlier levels. Oil and gas drilling, production of oilfield equipment, and the energy service sector remain weak, but some signs of improvement have emerged.
Manufacturing production in this District is responding to increased demands from the construction industry and from sectors tied to the national recovery. The turnaround in these sectors has been sufficient to overshadow energy-related weakness. Total manufacturing employment increased in June, the first-increase in more than a year. Strong demand for primary metals, construction supplies, and electronics pushed durable goods production up despite declines in fabricated metals and nonelectrical machinery. Oil drilling activity recently picked up, but production of oilfield equipment is not expected to respond until excess inventories have been worked off by the first half of 1984. Increased production in apparel and chemical industries together with higher operating rates at Texas oil refineries helped to accelerate growth in nondurable goods production.
Residential construction is still the strongest sector in the District economy. Apartment and condominium construction is proceeding faster than ever before in most of the major SMSAs in Texas. Occupancy rates continue to fall, and respondents are concerned that the market will be tremendously overbuilt by the time new projects are completed. Starts of single-family homes are roughly twice last year's slow rate, but rising mortgage rates may curtail activity during the second half of this year. Builders expect the recent increase in the FHA/VA rates to reduce sales to first-time home buyers.
The year-to-date permit value of commercial construction is slightly below last year's level. This reflects the slowdown in new office projects in Dallas and Houston. Office construction in other Texas SMSAs is accelerating. Moreover, some of the slack in the Dallas and Houston markets is being offset by increases in retail, industrial, and government construction projects.
Projections of farm income in Texas have been adjusted downward for 1983 because of drought conditions in West Texas. In-kind transfer payments from the PIK program will tend to mitigate income losses. Crop yields on PIK acres are likely to be higher than yields on planted acres. Texas ranchers have a higher proportion of the nation's cattle-on-feed this year than last. This will result in a greater share of revenues as well.
Department store sales for the District are only slightly ahead of last year's, largely because of year-over-year sales declines along the Border and energy-dependent Gulf areas. In non-energy dependent regions, the highest rate of sales gains are reported for home appliances, furniture, and home furnishings. Growth in apparel sales slowed in July but this reflects a normal seasonal occurrence. Moderate increases were reported throughout May and June. Sales in the Border areas are stable to increasing but well below a year earlier. Houston area sales fell off again in July after showing some signs of life in May and June.
Auto sales remain relatively strong and are increasing throughout the District.. Sales in June and July were well above year earlier levels when special incentive financing plans were not being used. Auto sales picked up in Houston during the last two months after being stable at low levels for almost a year. Availability is becoming a growing problem for dealers in the stronger markets. Accordingly, respondents are planning to place larger orders for 1984 models.
District member banks are still facing slack loan demand, largely because of sluggish business loan demand. Growth in business loans at the large banks has been trending downwards since the fourth quarter of 1982. This has been offset with an increase in security purchases and real estate lending. Long-term financing of large real estate projects has picked up through the use of "mini-perms," 7- to 10-year fixed rate financing packages. Deposit trends have not changed. Demand and time deposits have slowly declined while growth in savings deposits continues strong.