Beige Book Report: Dallas
May 8, 1984
The Eleventh District recovery continues strong despite the sluggish energy sector. Manufacturing employment increased for the second consecutive month in March and overall production was 13 percent above its low during the fall of 1982. Brisk auto and retail sales are ahead of the strong pace set last year. Residential and commercial construction maintained their overall strength, but, a decline in multifamily starts may suggest further weakness in that area.
District manufacturing activity is healthy. Manufacturing related to construction, consumer goods, and electronics account for almost all of the gains. Strong consumer spending and high levels of residential and commercial construction led to increases in the demand for nonelectrical machinery used to produce electrical goods and consumer durables. The demand for fabricated and primary metals is greater than one year ago and this strength can also be traced to construction and consumer expenditures. Mills for manufacturing paper products and materials for residential construction are running at or near capacity. Strong consumer spending is also buoying the demand for apparel with the increases being reflected in higher employment and output. The economic recovery is finally impacting the production of chemicals and plastics. Some firms have responded to the strong demand by running multiple shifts. Primary metals and chemical manufacturers indicate that intense domestic and foreign competition is squeezing profits and reducing market shares. Domestic firms hope to counter this pressure by using their technological advantage to develop new products and improve their competitive position. Manufacturing firms in the District are continuing to implement controls to maintain lower levels of inventory without hindering their ability to meet demand.
Continuing weakness in the energy sector is mirrored in the District's rig count which is down 12 percent from the first of the year and is only 9 percent above year-earlier levels. The lack of a significant increase in drilling means the dismal picture for this sector is likely to continue. Despite the overall weakness, the Texas offshore rig count has registered a 38 percent increase since January. This can be attributed to reduced drilling costs and recent leasing of favorable tracts offshore. Some oil field suppliers reported reductions in inventories and spot shortages of certain products used in drilling. This may portend an upturn for manufacturers and suppliers of oil field equipment later this year.
Auto sales are outpacing their increases of the previous year. Higher interest rates have not had noticeable effects on consumer attitudes or purchases. Sales would have been even higher but for shortages of the more popular models. Increased car production is mitigating inventory constraints, pointing to a strong 1984.
Retail sales maintain their strength. Some respondents reported declines in March but these were more than offset by mid-April sales and both months were well above the same period a year ago. Demand for durable goods in particular is benefiting from homebuilding and continued consumer optimism. Inventories are being increased because of retailers' bright outlook for the economy and a fear of shortages.
The boom in office and commercial construction is continuing with the exception of Houston, where the depressed energy industry has dampened demand for office space. Vacancy rates there have reached record levels. Industry analysts are predicting higher vacancy rates in Dallas but, to date, these expectations have not prevented marked increases in office construction. The value of new office and commercial development for the first quarter in Dallas is 43 percent above the level for the same period in 1983.
After leading the recovery with a stellar performance, residential construction growth is beginning to slow. Permits and starts of single family homes are still increasing but the number of new multifamily units has dropped significantly, reflecting fears of overbuilding. In Dallas alone, permits dropped 42 percent in March.
Total loans increased at savings and loans and the District's large banks. The rate of growth in real estate loans has slowed while remaining significantly above last year's March figures. Overbuilding in multifamily units has induced caution among lenders.
Farmers are benefiting from increasing commodity prices. Drought continues to plague about one-third of the District. Most cotton producers are not affected by the current drought and sales should increase because of brisk export demand arid moderate growth in domestic consumption.