March 15, 1988
The District economy continues to grow at a mild pace. Expansion in manufacturing is widespread, although construction-related manufacturing is declining. Drilling activity has recently turned up and it remains well above a year earlier. District retailers say their sales are sluggish, while auto dealers note slight increases in demand. Construction continues to decline and remains the weakest sector of the economy. Total deposits at District financial institutions remain below a year earlier. Although District agricultural prices are up from a year earlier, agriculturalists generally expect a slight decline in overall farm income in 1988.
Most district manufacturers report continued growth in orders. Demand for the products of construction-related firms, however, is falling. Manufacturers linked to oil and gas drilling note a continuation of the mild expansion in sales that emerged in the fourth quarter and they also cite significant year-over-year sales growth. Although some chemical and refined petroleum manufacturers report recent slight declines in orders, they perceive these to be temporary and they expect a strong upward trend to reappear. A number of petrochemical firms are expanding capacity. Steel producers report high levels of demand and they expect growth to persist throughout 1988. Production of electronic equipment is expanding moderately. Although some defense-related manufacturers report falloffs in contract values due to defense cuts, respondents expect to be impacted less than in other regions because of the high-technology focus of much District production. Most manufacturers in apparel and in food and kindred products report expanding orders. No manufacturing respondents reported significant increases in unplanned inventories.
The District drilling rig count increased slightly in February after declining in each of the previous four months. The February rig count was 22.2 percent higher than in February 1987 but was 9.6 percent lower than its previous peak of September 1987. A recent increase in District well permit applications, a leading indicator of drilling activity, suggests continued slight gains in the rig count.
The value of District construction contracts continues its protracted decline in both residential and nonresidential building. Overbuilding remains a problem in the office and retail markets in a number of District cities including, most notably, Austin. Even nonbuilding activity, which had been a strong point in District construction, has shown some recent weakness. Issuance of residential permits is at about one-fifth its 1984 rate. Both single and multi-family residential building permits are down.
District retailers say that sales are sluggish, following a better than expected showing at the end of the year. At department stores, January sales were below a year earlier, after a year-over-year increase in December. Department store sales have been particularly weak in the Dallas-Ft. Worth area. Retail employment continues to fall in the District both as a result of weak sales and because recent mergers and consolidations have led to layoffs of redundant managerial staffs.
District auto dealers report slight upturns in sales in February, following a decline in January. Inventories for domestic models are said to be at desired levels, while inventories of imports are high and above planned levels. Dealers expect little expansion in sales until the second half of 1988.
Total deposits at District financial institutions remain below a year earlier, despite year-over-year expansions at thrifts and member banks. Concerns about the stability of District financial institutions, as a result of problem real estate loans, are widespread. One large District financial institution lost eight percent of its total deposits in one week. These concerns are said to explain the shifts out of large time deposits and into small time deposits that continue to be evident, particularly at thrift institutions. At large District banks, business and real estate loans remain below a year earlier, with particularly strong declines appearing in the business loans category.
District farmers and ranchers generally expect their incomes to fall slightly below 1987 levels, but they anticipate relatively high incomes compared with other recent years. Although District crop and livestock prices remain above a year earlier, the ratio of prices paid by farmers to prices received by them has also grown. The 1987 sale of a cooperative denim mill in West Texas has pumped about $100 million into the farm economy of the region. The effects of that one-time income shock are increased land values and a firmed market for cotton equipment. Texas grapefruit production has finally rebounded from the 1983 freeze: 3.3 million boxes are expected this season, a 71 percent increase over a year ago. Texas cattle raisers are increasing their herds while herd sizes are declining nationally.