Beige Book Report: Dallas
June 24, 1986
Summary
The Eleventh District economy is still reeling from the declines in
energy prices. The drilling rig count has plummeted and oil and gas
extraction employment has also dropped sharply. Although
construction contract values rebounded slightly in April, their
trend has been downward this year. Manufacturers' orders continue to
fall in response to ebbing activity in construction and the energy
industry. Retail and auto sales are declining. Assets at large banks
are unchanged from a year earlier, as a result of sluggishness in
loan demand. District agricultural prices remain below those of last
year.
Manufacturing
Manufacturing firms in the District are reducing output and laying
off workers. Paper and allied products manufacturers, particularly
those that supply packaging, say their orders are down. Chemical
companies report fairly strong demand for products sold as
intermediate inputs to firms serving national markets, but
respondents note that demand is weak for final products marketed in
the District. Among stone, clay and glass producers, orders from
drillers and oilfield service companies have plummeted, and
construction-related demand is also off. Ebbing construction
activity in much of the District has stopped sales growth for lumber
and wood producers, but few report absolute declines in orders. Both
primary metals and non-electrical machinery manufacturers are
retrenching sharply in the face of falling demand from the energy
sector. Fabricated metals orders are also down, particularly those
from construction and electronics firms. Electronic equipment market
report slowly growing semiconductor sales, but orders for other
computer-linked products are slipping.
Construction
Although District construction contract values rebounded slightly in
April, the general trend since the start of the year has been down.
Nonresidential construction activity remains significantly below a
year earlier. Office vacancy rates in the District continue to
climb. Residential contract values are also well below a year
earlier and multifamily permits fell hard in April. There is much
evidence of overbuilding in multifamily housing.
Energy
Most energy industries are curtailing their activities in response
to the fall in oil prices. The drilling rig count in the District
states has declined 65 percent since June 1985 and extraction
employment has dropped sharply. Leading indicators of future
drilling are also off, with drilling permits 63 percent below last
year's level and the seismic crew count down 50 percent.
Automobile Sales
Automobile sales are slipping throughout the District. The largest
declines are in the energy-dependent portions of the region, where
year-to-year decreases are as high as 30 percent. Dealers link some
of the decline to what they perceive as a normal cycle in automobile
sales, but they believe most of the downturn is tied to the weakness
of the regional economy. Inventories are up but, as yet, they are
not at desired levels.
Retail Sales
Retail sales also are declining in the District, with revenues
turning down even in areas with only limited direct ties to the
energy industry. Retailers report that inventories are being held at
desired levels, despite sluggish sales, because of effective
monitoring and control. Price increases of some imported goods are
expected in the third quarter but. so far, the prices of Japanese
and European goods have been fairly stable.
Banking
Weakness in loan demand has induced large District banks to shift
their asset portfolios toward treasury securities. In May, treasury
securities grew significantly over their year-earlier level while
the volume of business loans declined absolutely. Real estate loans
continued to expand, but at a slower rate than last year. Deposits
have been falling at large banks, led by declines in holdings of
large certificates of deposit. In response to declining deposits,
District banks have increased their reliance on borrowings. Deposits
have continued to rise rapidly at thrifts.
Agriculture
In District agriculture, livestock and crop prices are down from the
levels of last year, but they have remained steady in recent weeks.
Grain and cotton prices are expected to fall. The reduction in grain
prices, however, will reduce costs for livestock producers. Income
prospects in District agriculture are more uncertain than usual
because of unresolved questions about the extent to which government
payments will offset the expected decline in grain and cotton
prices.