January 20, 1984
Economic recovery in the Eleventh District is continuing at a moderate pace, as strong performance in construction and several manufacturing industries more than offsets problems in agriculture and portions of the energy industry. Total manufacturing production is growing, with orders for nonelectrical machinery proving particularly vigorous. Commercial construction is relatively high for this time of the year, while the majority of residential construction remains in apartments and condominiums. Retail and auto sales continue to climb. A cautiously optimistic outlook for the oil field equipment industry exists. The recent wave of freezing weather resulted in large losses for Texas citrus farmers.
Recent District manufacturing experience varies greatly among industries but, overall, moderate growth has been occurring. The District is sharing in the increase in capital goods demand that has taken place across the country. Orders for nonelectrical machinery used in manufacturing continue a surge that prevailed throughout the fourth quarter of 1983. Heavy steel fabrication output is also rising. Raw steel manufacturers indicated a slight increase in orders over the last two months. A shakeout of inefficient producers, however, is likely because of heavy foreign competition and low profits. Aluminum production is running at nearly 100 percent of capacity, in response to strong demand from the auto, housing and appliance industries. Demand for chemicals and plastics continues to grow only moderately, but producers are very optimistic about sales for the first half of 1984. Orders for semi-conductors continue strong with future increases in employment and investment for plant and equipment expected. Despite losses in 1983, some apparel manufacturers along the Mexican border are optimistic about 1984.
Drilling activity in Texas continues to respond positively to stable oil prices, but signs of weakness still exist in some portions of the District energy industry. On a seasonally-adjusted basis, the Texas rig count posted a fourth quarter gain of 19 percent over the third quarter. The rig count declined significantly during the early weeks of January, but much (and perhaps all) of the decline is seasonal. Given stable oil prices, industry analysts see gradual improvement in the demand for many types of oil field equipment. In Dallas, the office of a large oil exploration company just announced extensive layoffs of white collar workers. One respondent expects a significant decline this year in District oil field services employment.
Auto sales throughout the District remain strong. December's unusually cold weather may have prevented Dallas from posting its best year ever. Houston and San Antonio dealers indicated that low availability of cars hampered sales.
Retail sales in December proved above expectations in all major District cities but Houston. Most major cities reported double-digit increases in department store sales in December, compared with a year earlier, although Houston was up only 5 percent. A number of respondents said that demand for apparel and appliances has been particularly strong. Optimism concerning the first half of 1984 was widely expressed.
Commercial construction continues at a high level for this time of year. The paucity of office building construction in Houston is largely being offset by retail and light industrial construction elsewhere in Texas. Dallas' value of nonresidential permits for 1983 rose above the previous year's, but Houston's fell. Respondents expect Dallas' strength and Houston's weakness in nonresidential construction to continue in 1984.
The pace of residential construction is generally stable at an historically high rate, but significant declines in the overbuilt multifamily sector are widely anticipated. Although apartments and condominiums currently account for the majority of permits issued, single-family home construction appears to be on the increase.
Loan growth at District member banks on a year-over-year basis has been rising steadily since September 1983. That follows a period of deceleration which began in the first quarter of last year. Even so, the year-over-year rate of growth in loans remains well below the average for the first quarter of 1983 and for the second half of 1982. At large banks, growth in real estate loans is continuing at a very high rate, while business loan growth remains sluggish. Deposit growth at member banks slowed in every quarter of last year compared to year-earlier levels. Deposit data for December indicated that this trend of deceleration continued through year-end.
Total Texas agricultural cash receipts for 1983 through September were 5.5 percent higher than those for 1982, owing to higher crop prices. Prices paid by Texas farmers increased 3.2 percent. A spate of freezing weather resulted in a $200 million loss to Texas citrus growers.