Beige Book Report: Dallas
June 21, 1989
The District economy continues to expand at a modest pace. Demand for manufactured products is growing slowly. Retail sales increases are strong and auto sales expansion is moderate. Construction activity shows little change in either direction. The oil and gas drilling recovery continues. In agriculture, recent rains have moderated the drought.
Manufacturing output is expanding slowly overall. The turnaround in drilling activity last February has generated steady increases in oilfield equipment sales, particularly to export markets. Demand for primary metals is steady to up, with especially positive reports from foundry operators, a number of whom are adding capacity. Fabricated metal sales are also growing and respondents are very optimistic about orders for the rest of the year. Slowing defense- related activity has forced layoffs and hiring freezes at aircraft firms. Sales of defense-related electronics products are also softening. Elsewhere in the electronics industry, semiconductor sales have shown little recent growth, but makers of other electronics-related products cite upturns in orders. Orders to construction-related manufacturers—including those in stone, clay and glass and lumber and wood products—continue at a sluggish pace. After adjustment for seasonal factors, apparel producers have had little recent sales variation. A number of food products firms have been raising prices lately, despite little recent growth in input prices, and industry revenues are up. Chemical demand has been leveling off recently, but sales remain above a year earlier. Capital spending projects continue in this industry and labor shortages are becoming a concern. Oil refinery production is showing little change overall. Paper industry output continues near full capacity, but respondents note some softening in the high level of demand, as reflected in a reduction in the backlog of new orders. Paper producers are concerned about the impacts of the rise in the dollar upon their export markets. Although an increasing number of manufacturers say that wage pressures are rising, such respondents are still in the minority. Firms citing upward wage pressure say it has been accelerating in recent months, particularly in the chemical-producing areas of the Gulf coast.
Retail sales show strong year-over-year expansion. Rates of growth are particularly high in west Texas and on the Mexican border, but increases elsewhere are the rule, rather than the exception. Retail sales in Houston are estimated as having grown between 8 and 10 percent from a year earlier and sales in Dallas have also been increasing markedly.
Despite a national slump in new car sales, District auto sales are growing. Sales in Houston for the first four months of this year are up 9 percent over a year earlier and dealers expect this rate of expansion to persist. Dallas dealers say their sales are also growing and that, even without the recent rebate and interest incentive programs, they think demand would have increased. One respondent said that domestic automakers are learning not to take advantage of the appreciation of the dollar to push up prices, but are now going for market share instead.
Construction activity remains weak, but shows no consistent pattern of either growth or decline. Nonresidential contracting is essentially unchanged, while residential construction values have rebounded somewhat from their weakness of early 1989. Nonbuilding construction, for such structures as roads and public works, continues to slide. Although existing home sales continue to rise, median residential prices in most metropolitan areas are falling. An exception is Houston, where both construction activity and real estate prices have rebounded with the recovery there. Office vacancy rates continue to edge down in most metropolitan markets except San Antonio, where vacancies are still rising. Construction employment declines in Texas have leveled off, but they show little evidence of a rebound.
Oil and gas drilling continues its recovery. After declining from June 1988 until January of this year, the District rotary rig count increased in every month from February through May. Although the rig count remains 17 percent less than a year earlier, it has increased 23 percent since January. In recent months, oil prices have remained relatively stable in the $20 per barrel range. Respondents believe that the recent OPEC meetings are likely to have little effect on the price of oil and that drilling should increase mildly over the next few months.
Rains have improved growing conditions for much of District agriculture, but subsoil moisture remains low in large portions of Texas and New Mexico. Although the rain has accelerated the growth of field crops, it was accompanied by hail, wind, and flooding that damaged some grain and livestock operations in south central and northwest Texas. Despite the increased moisture, a combination of continued dryness in some cattle producing-areas and high feed prices has motivated substantial herd liquidation. The increased moisture came too late to help the already damaged District wheat crop, which is estimated to be the smallest since 1978.