Beige Book Report: Dallas
January 27, 1988
The District economic expansion continues, led by manufacturing growth, but some other sectors are showing renewed weakness. Drilling is decreasing. New construction activity is declining. Retail sales strengthened late in the holiday season, but auto sales are very weak. Total deposits at District financial institutions remain below a year earlier. Unusually widespread and heavy snowfall has caused severe damage to District agriculture.
Most District manufacturers report continued expansion in orders. The principal exception is construction-related industries, where sales are declining or are unchanged at low levels. Manufacturers of chemicals and of refined petroleum products cite strong orders and expect growth in the first quarter. District apparel producers say their sales are increasing and some firms are adding to their workforces. Defense contracts let to District manufacturers have been increasing lately and defense contractors in the District say they anticipate continued high levels of production in 1988. Respondents in industries tied to oil and gas drilling report slight increases in orders and product prices, but they say that profit margins remain low. Production of electric and electronic equipment is growing at a modest pace, while steel production is growing strongly.
The District drilling rig count fell moderately on a seasonally adjusted basis in each month of the fourth quarter. Recent declines in well permit applications, a leading indicator of drilling, point toward further declines in District drilling. A number of analysts are becoming increasingly bearish about energy prices.
District construction activity has been declining. In October and November, the value of construction contracts fell substantially from its third-quarter average. Declines in new residential and nonresidential construction more than offset the increasing values of nonbuilding construction contracts. Most of the additional weakness in residential building was in single-family homes. Despite recent declines in construction contract values, construction employment has been growing in recent months.
District retailers say that holiday sales were higher than they had expected, but they noted that the gains came at the expense of deep markdowns. The majority of retailers reported year-over-year nominal gains in the 3 percent to 7 percent range. District apparel sales did not grow as rapidly as those of other traditional gift items, however.
District auto dealers report substantial dropoffs in sales. Respondents attribute the weakness to sluggishness in the District economy and to heightened consumer uncertainty. Several firms said they believed that consumer uncertainty has risen in the District because of renewed weakness in oil prices and because of growing concerns over the possible imminence of a national recession. Dealers also say that prices of imports are continuing to rise and that inventories of imports are far above desired levels.
Total deposits at the District's financial institutions remain below year-earlier levels. The weakness in deposits is focused on continuing declines at the commercial banks. District thrifts report year-over-year increases in deposits, despite declines in transaction deposits, nontransaction savings deposits, and large time deposits. Small time deposits are growing at the thrifts. Regulatory net worth at Texas thrifts continues its steady decline, after initially having fallen into the negative range in January 1987. Business and real estate loans at large District banks are decreasing at accelerating rates. In the fourth quarter, large District banks' holdings of securities also fell below a year earlier.
District agriculture has suffered severe weather damage in recent weeks. Snow damaged some unharvested cotton and it also collapsed large numbers of poultry sheds. Current estimates are that a half- million birds perished as a result of these collapses. The Texas All Crops Price Index was up 11 percent in December from a year earlier, but it declined by 2 percent from November's level. The Texas Livestock and Livestock Products Price Index in December was 8 percent above a year earlier, but was unchanged from November. Price increases for poultry are widely expected in the wake of the snow damage to poultry operations. Analysts generally expect real net cash farm income in the District states to be lower in 1988 because of falling revenues from cotton and livestock production.