Beige Book Report: Dallas
October 27, 1987
The District economy continues to grow very slowly. The manufacturing sector is rebounding. Drilling continues to recover, but some analysts believe the end of growth is in sight. Although new construction activity has fallen slightly, it remains above its trough of the end of last year. Retail sales are sluggish and auto sales have declined. Deteriorating conditions predominate at the District's financial institutions. The income outlook is favorable for District livestock and cotton producers.
Manufacturers indicate that, overall, demand for their products continues to improve. Orders to apparel producers have increased and output is up. Chemical manufacturers and refiners cite strong orders and they say that sales prospects for the coming months are favorable. Recent high demand for steel has led to shortages of some products and to rising prices. Producers of electrical and electronic equipment report that sales have been fairly stable in recent months and remain above year-earlier levels. Defense contractors say that output and prospects for new orders remain strong. Orders are unchanged overall in the energy-related durable goods industries and respondents expect no significant increases in demand for the remainder of this year. Some manufacturers of durable goods tied to the construction industry note that orders are stabilizing at very low levels, but others report continued declines.
The District drilling rig count continues to climb, but analysts believe that it has nearly completed its upward adjustment to oil prices in the $19-20 per barrel range. The rig count rose in both August and September but well permit applications and the seismic crew count, both of which are leading indicators of drilling activity, have remained nearly constant over the past few months.
Overall, new construction activity has fallen slightly in recent months, but remains above its trough of the end of last year. The monthly average value of total construction contracts was lower for July and August than for the second quarter, owing to reductions in both nonbuilding and residential contracts. The value of nonresidential contracts held fairly steady. The modest weakness in new nonbuilding construction is especially noteworthy because recent growth in total new construction had been focused in that category. The decline in new residential construction reflected substantial declines in both the single-family and multifamily sectors. Declines in construction employment have slowed in recent months.
Retailers report sluggish sales that, in real terms, are about unchanged from a year earlier. Respondents say that inventories are slightly above their desired levels and that they do not expect much sales growth in upcoming months.
Auto sales are showing renewed weakness. Dealers say that, after receiving a boost from interest rate incentive programs in August, sales fell in September and weakened further in the first week of October. Because the decline in sales was unexpectedly large, inventories are slightly above their desired levels. Demand for some foreign autos has fallen because of price increases linked to the diminished value of the dollar. All respondents expect sluggish sales in the foreseeable future.
The District's financial institutions continue to show weakness in the wake of the regional economic downturn. In August, deposits at a sample of all District financial institutions fell 0.9 percent below a year earlier, this decline occurred despite continued, but slowing, growth in deposits at thrifts. The delinquency rate on mortgage loans at the Texas thrifts rose in July to 24.4 percent, compared with a 16.8 percent rate in December and 12.8 percent in September 1986. Regulatory net worth at these institutions fell further into the red, hitting negative $3.25 billion in July compared with a positive value of $289 million last December. At the District's large commercial banks, deposits, total liabilities, and loans all continue to decline. In August, total deposits at the District's commercial banks fell 2.7 percent below their year- earlier level.
In District agriculture, prices paid to crop and livestock farmers are up substantially over a year earlier. Earnings are particularly high for District livestock producers because of increases in beef prices and declines in feed costs. Although the number of Texas cattle and calf operations has dropped by 4 percent since 1985, producers who have remained in business are receiving feeder cattle prices almost 29 percent higher than a year earlier. The increases in feeder cattle prices, although favorable to the cow-calf operations that predominate in the District, have cut profit margins for cattle feeders. Last June, Texas High Plains cotton farmers replanted their fields after earlier plantings were damaged by hail and heavy rains. A warm September was required to protect this late crop and favorable weather did materialize. Further warm weather is needed in order to ensure full maturation of the cotton crop.