Beige Book Report: Dallas
August 2, 1988
The District economy remains sluggish overall, in contrast to the steady growth it posted during the second half of 1987. Nevertheless, survey respondents are now somewhat more positive about business conditions than they have been in the recent past. Manufacturers' orders continue to grow, although the expansion is slower than during last year. Drilling has slipped lately. Although retail sales are low, merchants are becoming more optimistic. Construction activity has stabilized. Recent rains have abated the District's drought problems somewhat. Deposits at District financial institutions continue to ebb.
Orders to District manufacturers are generally up from earlier this year. Sales growth for some industries is slower than during the second half of 1987, however. Despite the ongoing expansion, upward pressures on wages beyond normal cost-of-living increases were almost uniformly reported as insignificant. The only notable exception was the electronics industry, where orders are expanding and are expected to continue to pick up for the rest of this year. Demand for primary metals has also been rising, and product and input prices are up. Defense contracting activity for some District aircraft-makers has fallen, but these firms say they are continuing to work through previously issued contracts, so that production has not declined. Although sales of oilfield equipment are growing, the rate of increase is much diminished and respondents anticipate little further expansion. Some firms in the District petrochemicals industry are reaching capacity constraints and they say that high demand has resulted in undesirably low inventories. Apparel producers generally report very modest sales growth. Orders to construction-linked stone, clay and glass manufacturers continue to fall. Food processing firms anticipate further rises in input prices because of the drought and they expect to pass these price increases on to consumers.
District drilling has recently declined. After a period of modest gains from March through May, the District rig count fell in June and again in the first half of July. Nevertheless, respondents generally expect drilling activity to show little significant variation in the near future and they say that drilling plans will not change much unless oil prices remain below $15 per barrel for an extended period.
Although retailers report sluggish demand, most of those surveyed believe that the bottom has already been reached. Respondents expect growth in the future, particularly in Houston. The patterns of demand for different types of retail merchandise vary greatly. Apparel sales remain weak while demand for home products is strong.
District auto sales have lately been increasing overall, and dealers have begun to express more optimism about future demand than they have in the recent past. In Dallas, sales are unchanged from a year earlier while Houston has recently shown noticeable growth. Dealers say inventories in Dallas are adequate but that Houston inventories are tight.
District construction activity is flattening after a prolonged downturn. In May, a three-month moving average of District construction contract values posted its first increase in twelve months. Both nonresidential and residential contract values have begun to stabilize. Values of residential building permits have also shown little change of late. Office vacancy rates in major District cities remain among the highest in the nation and respondents do not view the recent stability in construction contract values as foreshadowing any significant upturns in building activity this year.
Income prospects for District agriculture are said to be mixed. Prices received by Texas farmers and ranchers in June averaged 6 percent above a year earlier, but livestock prices dropped 4.3 percent from the previous month. Some cattle-producers have been selling off their breeding herds in response to drought conditions. Movement of cattle from dried-out pastures to feed lots contributed to a record 705,000 placement of Texas cattle on feed in May. Since then, recent rains have diminished the already-moderate drought in the Eleventh District and have raised cotton production expectations to high levels. The additional moisture was too late for some drought-damaged corn and for some ranchers, however.
Total deposits at District banks continue to show accelerating year- over-year rates of decline. These declines are dominated by significant reductions in large time deposits and MMDAs. Despite dropoffs in these same liability categories at thrifts, overall deposits at thrifts are expanding. Among District banks, particularly high rates of deposit slippage are being posted at the large banks, and these reductions in liabilities are accompanied by falling asset levels. The highest rates of asset declines are taking place in loans and, chiefly, in business loans.