Beige Book Report: Dallas
September 16, 1985
Economic growth in the Eleventh District is sluggish. Manufacturing activity is virtually flat. Drilling remains depressed because there is still widespread concern about oil price stability. Retail sales expansion is slow overall, but automobile purchases are even stronger than last year's robust pace. Construction activity is high. Asset growth is accelerating at the District's large banks. Significant price declines will probably mean reduced agricultural income.
Eleventh District manufacturing activity is stable. Little, if any growth is evident overall. Many respondents report that orders are significantly below those of late 1983 and early 1984. Industries tied to construction are reporting robust demand, however. Lumber and wood products sales are high, as residential construction continues to rise at a moderately strong pace. Nonresidential and non-building construction, such as streets, highways and water treatment plants, are buoying orders for stone, clay, and glass. The demand for oilfield machinery is weakening slightly and respondents report minor reductions in employment. Strength in international orders has partially offset a decline in domestic orders. Orders for electrical machinery remain steady, but continued weakness in semiconductor demand has led to additional layoffs by some District electronics manufacturers. Defense spending is partially offsetting the weakness in private-sector demand for electronics, and it is also responsible for increased activity in the aerospace industry. Manufacturers of paper and allied products say their orders are slightly below a year earlier, but demand for computer-related paper products is rising. Overall output in the apparel industry is depressed and employment has reached a fifteen year low. Petroleum refinery utilization has dipped lately, but remains high by recent standards.
Drilling activity in the Eleventh District continues its downturn despite fairly stable spot market oil prices in the recent past. Respondents say concern about future price stability is a major impediment to expansion in drilling. The pace of decline in the Texas rig count has slowed in recent months, however.
Retail sales show little growth overall. Sales of large appliances and other household goods have been declining absolutely. Respondents note that consumers are resisting price increases. Retailers are resorting more frequently to markdowns in order to reduce excess inventories. The beginning of Sunday sales in Texas has induced some stores to hire new workers, but overall employment expansion is negligible.
Low interest rates offered by automakers are keeping auto sales brisk. Sales in many areas are above last year's exceptionally strong pace. Most models remain in good supply, according to respondents, who note that the recent strike by automobile haulers had only a minor effect on inventories. Dealers report they are unsure about the extent to which increased automobile imports will affect prices this fall.
Construction activity in the District remains strong. Nonresidential construction contract values continue above the pace of last year, but many respondents report that building plans are being deferred and that the value of contracts will decline soon. The value of non- building projects is rising, as a result of increased construction of streets, highways, and water-treatment facilities. A resurgence of residential construction is in process, in the wake of reductions in mortgage rates. A recent expansion in the value of residential permits has been accompanied by more modest growth in the number of permits. Respondents attribute the increased ratio of permit value to number of permits to a decline in the proportion of "starter" homes being constructed. After a long period of decline, the number of multifamily permits has increased, suggesting the excess supply from previous overbuilding is beginning to abate.
Asset growth at the District's large banks has been accelerating. The growth rate of total loans increased in June and July, after declining in each of the six previous months. The rate of consumer loan expansion is rising. Real estate lending continues to move up strongly, although at a slower pace than earlier in the year. Business lending in July was virtually unchanged from a year earlier. Loan growth at Texas savings and loans is slowing, although it is still high. Deposit growth is ebbing at large banks and at all District financial institutions, but expansion of transactions deposits has accelerated. In July, large banks posted a year-over- year increase in borrowings, the first increase recorded this year.
District agriculture continues to show weakness. Overall crop production is expected to be up over last year's level, but will not offset significant drops in prices. Crop and livestock prices have fallen by 10 to 20 percent from a year earlier. As a result, recent agricultural income estimates for Texas show that net farm income is likely to be smaller in 1985 than 1984.