Beige Book Report: Dallas
December 5, 1985
Evidence of overall expansion in the District economy is scant. The energy industry continues to weaken. Manufacturers report little change in conditions. Retail sales are rising very sluggishly. The value of construction contracts has been increasing, but some signs of a downturn in office building construction are emerging. The rate of asset expansion has slowed at District banks. Agricultural prices have recently edged up, but they remain well below a year earlier.
District manufacturers report little change in conditions. With the exception of lumber and wood products, respondents find that declines in the value of the dollar have not yet resulted in increased orders. Despite some recent improvement in sales, lumber and wood producers expect the usual seasonal declines in demand to result in temporary plant shutdowns. Primary and fabricated metals manufacturers report reductions in orders, which they attribute to slowing current activity in commercial construction. These same manufacturing industries, together with producers of nonelectrical machinery, also face declining demand from the troubled oil and gas drilling industry. Continued sparse sales and excessive inventories have recently led a number of firms in the District's semiconductor industry to announce layoffs. Growing defense spending is pushing up production and employment in the District's aircraft and parts industry. Output is rising in the food processing and chemical industries, while petroleum refinery activity is slipping and apparel industry demand remains weak.
Drilling activity in the Eleventh District continues to decline at accelerating rates. The number of active drilling rigs in Texas is falling at slightly faster rates than in the U.S. Leading indicators of drilling, including the seismic crew count and the number of well permit applications, are also slipping.
Retail sales respondents report weak growth and say they expect a poor fourth quarter, overall. They also note that fashion lines are selling well while demand for big ticket items, such as home furniture and electronics, is low. Retailers say they are managing their inventories more closely than last year.
The seasonal reduction in auto sales was much smaller in October of this year than is normal for the period. Dealers attribute this strong performance to interest rate promotions offered by domestic manufacturers. More recently, respondents have begun to report further reductions in sales, which they attribute to consumer expectations of new financing incentives. Price increases for the 1986 models are said to be modest, and dealers expect increased price competition in the coming year.
The value of nonresidential construction contracts increased strongly in the third quarter despite a slight dip in September. Non-building construction, particularly of streets and highways, continues to register the largest yearly gains of any major category. Construction contract values for retail stores and office buildings remain above a year earlier. The October permit totals for the Dallas/Forth Worth metropolitan area show a large decline in office building construction, although other types of construction buoyed nonresidential construction.
The rebound in residential construction that has been evident since mid-1985 has abated. The value of residential construction contracts fell in August and September, after strong growth earlier this year. The number of housing permits issued in the District fell in September, reversing the upturn in permit issuance that began early in the year. Much of the downturn is due to renewed declines in multifamily building. Single family permits continue to rise gradually in response to lower interest rates.
In October, both total loans and securities at the District's large banks declined absolutely from a year earlier. The rate of growth in loans and securities also declined in both August and September; although it remained positive in those months. The pace of decline in October for loans was substantially larger than for securities, and was concentrated in consumer loans, business loans, and other loans. Much of the weakness in consumer loans is said to reflect past special financing programs offered by U.S. auto manufacturers. Real estate loans continued to increase, but the rate of expansion has lately been ebbing. Deposits at large banks fell absolutely from a year earlier and from a month earlier, but MMDA growth accelerated substantially.
District agricultural prices increased slightly in October from September, but remained 9 percent below a year earlier. The increase in overall prices masked declines in some crops. Cattle prices are higher than expected and cattle futures prices for near-term deliveries suggest continued upward pressure. The impetus for higher prices comes from reduced supplies, however, so that total revenue may not increase.