January 25, 1989
The District is growing moderately, chiefly as a result of expansion in manufacturing and in services. December retail sales were up at a healthy pace and auto sales have also shown some strengthening. Construction activity has changed little in recent months, but oil and gas drilling has entered another period of protracted decline. Continuing District drought problems, in contrast to improving moisture conditions nationally, suggest diminished net farm income prospects for 1989.
Manufacturing
Manufacturing expansion is moderate overall, but variation among
industries is great. Chemical producers say orders have been rising
steadily this year, but there has been some seasonal slackening of
late. Although some respondents in this industry express concerns
over possible demand slippage in late 1989 or early 1990, reports of
capacity constraints and of investments in plant and equipment are
widespread. While a number of petroleum refiners are also running at
full capacity, investments in plant and equipment beyond normal
maintenance are not generally under consideration. Paper producers
are undergoing a seasonal decline in demand, but most expect to
operate at full capacity in 1989, as they have during 1988. Several
said they plan capacity expansions this year. Steel manufacturers
report increasing demand, except for construction related products,
and firms are optimistic about sales growth in 1989. Orders to
fabricated metals manufacturers have been expanding throughout this
year. Complaints about rising prices for steel inputs were common in
this industry. Respondents in the construction-linked industries of
lumber and wood products and stone, clay, and glass generally report
continued weak sales and some say they are laying off workers.
Electronics manufacturers note that demand has changed little
overall in recent months. Most manufacturers say there are few, if
any, upward wage pressures.
Retail
December retail sales growth varied across the District, but
expansion was widespread. Houston's sales for the period were
reported as up 6 to 7 percent from a year earlier, and Dallas'
increases were said to be in the 7 percent range. A combination of a
pegged peso, rising consumer prices in Mexico, and concerns over a
possible devaluation was said to have pushed up sales by as much as
30 percent from a year earlier at some border retail establishments.
Elsewhere, however, growth was said to be somewhat slower, with
particular sluggishness in Austin.
Automobiles
New automobile sales in December rose above a year earlier and they
were up markedly from the levels of November 1988. For the year,
unit sales were up by 3 percent in Houston but up by only 2 to 3
percent in Dallas. Auto dealers expect significant increases in unit
sales in the coming year but stress that volume is still below
levels prior to the 1986 District economic downturn.
Construction
After growing moderately from April to August, the overall value of
District construction contracts has changed little in recent months.
Recent values remain at about half the levels of the third quarter
of 1988. Despite the stability in overall contract values, there has
been much change in the three principal components of spending.
Nonresidential building contract values have turned down recently,
while nonbuilding contracts have risen. Residential contract values
have shown little recent change, but residential building permits
have begun to grow, mainly through an upturn in single-family
permits.
Oil and gas drilling
District oil and gas drilling has been declining lately and, in
December, fell to its lowest level in more than two years. The
principal leading indicators of drilling activity, including the
seismic crew count and well permits issued, have also fallen. These
reductions have occurred in the face of rising oil prices, which in
December reached their highest levels since last April. Concerns are
widespread that recent oil prices will not persist. West Texas
intermediate crude oil prices are generally believed likely to
average about $15 per barrel this year. The current price of over
$17 per barrel is not felt to be sustainable.
Agriculture
District agriculture continues to suffer from drought. According to
early reports, moisture shortages have already damaged the
District's winter wheat crop, most of which is in north and
northwestern Texas. South Texas farmers are expressing renewed
concern about the impact of dry conditions upon crops they will
plant this winter. Over the last year, increased grain prices have
squeezed profit margins of feeder cattle operations, whose product
prices have risen less than the cost of feed. In December, however,
beef cattle prices rose while prices of traditional feed grains fell
slightly or remained unchanged from November. On average, prices
received by Texas farmers and ranchers in December were unchanged
from November but were 4 percent above a year earlier.