June 15, 1988
After a period of modest, but steady growth during the second half of 1987, the District economic expansion has begun to show signs of increased sluggishness. Growth in manufacturers' orders has ebbed. Drilling activity has entered a period of slow, although persistent increases, after declining during last year's fourth quarter. Retail sales are weak and previously strong auto sales growth has faltered somewhat. Construction activity is still falling. Prices of District farm and ranch products have been edging downward, but they remain above a year earlier. Although deposits at District financial institutions continue to slide, the rate of decrease has moderated.
District manufacturing activity remains strong relative to the rest of the economy, but respondents report slower growth in the first half of 1988 than in 1987. Although construction-related manufacturers generally note weak demand, orders in Houston are said to be up modestly. Nonelectrical machinery sales are increasing. Primary metals producers say that reduced competition from imports has resulted in rising sales and higher prices for their products. Orders to transportation equipment manufacturers, particularly aerospace and defense-related firms, are expanding. Electric and electronic equipment respondents report continued strong demand. In some segments of this industry, notably semiconductor manufacturing, supply constraints are placing significant upward pressures on selling prices. In contrast, weak-to-negative sales growth has resulted in declining employment in the apparel industry.
District drilling has recently expanded moderately. After declining from October 1987 through January of this year, the rig count rose from February through May. Although rig activity is above the depressed levels of a year ago, recent increases have been quite modest. Gains in District well permit applications, however, are said to suggest that drilling may grow somewhat more strongly over the next few months.
District retail sales have fallen below a year earlier, but some respondents say recent declines may reflect the effects of the early Easter. Sales strength varies significantly among areas in the District, with marked growth in the Houston area, and particular weakness in Dallas and Austin. Several retailers said price increases in women's apparel have reduced sales of that product line.
Although District automobile sales have generally shown year-over- year expansion in the first half of 1988, signs have recently been mixed. While sales growth continued in Dallas during April and May, some slippage has occurred in early June. In Houston, April and May sales were below a year earlier, following expansion during the first quarter. Dealers express optimism about auto sales for the balance of 1988 because they expect the Texas recovery to continue.
Declines in District construction activity have abated somewhat in recent months, but the industry shows little evidence of a rebound. The total value of construction contracts continues to fall. Nevertheless, nonresidential building contract values appear to have stabilized, though at very low levels. Residential contract values are still falling, however, and nonbuilding contracts have lately declined markedly. The weakness in residential construction is concentrated in single family building. Multifamily activity is extremely low, but is said to have little room to fall further. Previous sharp declines in contracting activity continue to push construction employment lower; these declines may abate should construction activity continue to stabilize.
Weather conditions and reduced cattle supplies have led to moderate reductions in District farm revenue expectations for 1988. Nevertheless, agriculturalists anticipate higher income this year than what they received during most previous years of the present decade. Although recent rains have alleviated problems in some areas, dry conditions predominate in much of the District and have reduced corn yields. Conversely, the cotton crop has been battered by high winds and hail in isolated areas, but replanting is underway. Revenues from livestock marketing are expected to fall in 1988, as placements of cattle on feed decline and as the impact of falling demand continues to affect lamb prices. District agricultural product prices have slipped lately, but are still above the levels of a year earlier.
Although April deposits at District financial institutions remained below a year earlier, they were above March levels and recent rates of year-over-year decline have been markedly slower than those predominating in 1987. Deposits at thrifts continue to grow and year-over-year rates of change are accelerating. At the large banks, assets and liabilities continue to ebb, but the rates of decline are more moderate than those of the second half of last year. Loan volumes at the large banks are declining in most categories, including business, real estate, and other loans.