November 2, 1983
The expansion of the Eleventh District economy is broadening, but the rate of growth is slowing. Total manufacturing production continues to advance, but the growth in demand at aluminum and electronics firms has slackened. Retail and auto sales are increasing throughout the District and retailers expect Christmas sales to be the best in three years. Residential construction is slowing from record levels, but this is partly seasonal. Commercial construction, increasing overall, is still slow in energy-dependent areas. Business loan demand at large banks is up as is total loan demand at member banks. Higher crop prices are maintaining farm income despite losses by livestock producers.
Moderate gains in manufacturing production continue. Orders for aluminum are still increasing but at a decreasing rate. Capacity utilization and profit margins are also rising. Electronics firms report that orders are not increasing as fast as they had been. The level of orders, however, is high enough to increase backlogs. Capacity is being expanded and prices are trending up. Buoyed by strong Christmas orders, apparel production is still increasing and respondents are optimistic about the level of spring orders. Production at copper mills has picked up and most plants have now reopened. Steel demand is stable despite the continuing drag from the depressed oil-field equipment sector. Orders and prices at lumber and wood product mills are lower and trending down. Inventories are rising, and in response, production is being cut back. This production decline is in part seasonal although respondents also cite the summer slowdown in residential construction resulting from higher mortgage rates.
The number of active drilling rigs in the District rose considerably throughout September and early October. Texas' rig count is now substantially above the year-earlier count. The utilization rate of oil-well servicing rigs also increased significantly in the last two months. Servicing companies are still experiencing low or negative profits because of intense price competition in bidding for servicing contracts. More bankruptcies are expected in this sector of the energy industry.
Department store sales for the District based on year-to-date figures continue to be weak, but an upward trend has emerged. Sales figures for the four weeks ended October 15 reveal increasing strength in the Border and Gulf areas. Other areas are registering strong sales gains both from earlier months and from last year. Respondents, citing renewed consumer confidence, are very optimistic about Christmas sales.
Auto sales are still strong throughout the District. Dealers in Dallas posted the best year-to-date sales increase in ten years. Auto sales in the Houston area are still down on a year-to-date basis, but in September, sales were up from the year-earlier level. Recent gains have been attributed to growing consumer confidence. Current sales and traffic levels have made dealers optimistic about sales during the final months of 1983.
Residential construction is slowing. Closings of single-family homes reached a record in August but sales contracts have since declined. Respondents indicate that this is largely seasonal, but they also point to the more permanent effect that higher mortgage rates are having on home sales. Home prices and input costs are generally stable to up slightly. Multifamily starts declined further in September and October, but the large number of permits taken out in the late spring and summer should maintain a steady rate of construction activity during the next several months. Occupancy rates are declining and rental rates are stable. Multifamily starts should continue to slow as concerns about overbuilding increase.
Commercial construction is increasing. The year-to-date value of permits in Dallas is 18 percent ahead of last year's. These figures do not include three major office projects that were recently announced. Since the last report, there has been very little change in the Houston construction market. Some retail activity is occurring, but no major office projects are being started. The year- to-date permit value for commercial construction in Houston is well behind last year's. Most other District cities are reporting increased activity.
Loan growth at member banks picked up in September from the modest pace reported in August. Large banks had a sharp increase in business loan demand while the rapid growth in real estate lending continued. Nonperforming loans, particularly in the energy sector, are holding down bank income. Deposit increases remain small at member banks. Banks have been relying more heavily on borrowed funds. Demand and savings deposits rose moderately, but a sharp decline in jumbo CDs at the large weekly reporting banks reduced time deposits at District banks.