Beige Book Report: Dallas
August 9, 1989
The District economy is expanding at a modest pace. Manufacturing growth is slow. Retail sales continue to increase at a moderate to strong rate. Buyer incentive programs have helped to push up auto sales. Construction activity shows signs of a modest recovery. The oil and gas drilling upturn, which began in the first quarter, is still on track. Prices paid to District farmers in June were up slightly on a year-over-year basis, but down a little from May.
Manufacturing is growing slowly, but the recent performance of individual industries varies widely. Following declines that carried into the first quarter of 1989, demand for oilfield equipment has expanded lately, but sales have not pushed above year-earlier levels. Orders to District lumber producers are up and selling prices are said to be the highest in eight years. The increased demand is coming from areas outside the District. Part of the expansion in sales is said to stem from environmentally-related production problems elsewhere in the nation. Demand for stone, clay and glass remains sluggish. The major geographic exception is the Houston area, where increases in construction activity have stimulated purchases of building-related concrete and glass products. Orders to fabricated metals producers generally are rising, but firms that serve the construction industry say their sales are weak. Demand for primary metals varies widely among products but overall sales have shown little change recently. Electric and electronic equipment orders are softening. Semiconductor sales are down. Demand for lower-end computers is also weakening, but demand for upper-end products remains strong.
Apparel orders are growing from first-quarter levels. The demand for casual clothes is showing a particularly strong expansion. Food processing firms cite unexpectedly slow increases in sales. Some meat processors say they are hedging against expectations of higher input prices. Orders to District paper manufactures remain high and prices for paper products have been rising recently. Nevertheless, some paper firms are concerned about the rising value of the dollar. Chemical producers report that demand is declining slightly and productive capacity is increasing, while sales by petroleum refiners are up.
District retailers continue to show moderate to strong growth year- over-year. The expansion appears to be focused in department store sales. Apparel marketings are said to be strong and some firms also report increases in demand for consumer durables. Growth rates in retail sales are particularly high in south Texas. Although expansion also has been strong in Houston for much of this year, severe weather is said to have discouraged purchases during June.
Auto sales have been strong, but a significant portion of recent growth is said to be linked to temporary incentive programs. In June, auto sales in Dallas were up 13 percent from a year earlier. Expansion was also strong in Houston—despite some declines in import sales. In San Antonio, growth has been somewhat weaker than in the District's two major cities.
District construction activity is beginning to show signs of a recovery, albeit a weak one. For the first time in almost two years, the value of total construction contracts has risen above a year earlier. Nonresidential building is the strongest component of construction growth, but residential contract values are also increasing. Single-family homebuilding is expanding, but multifamily building remains at very low levels. Although office vacancy rates remain high, they have been declining in several of the District's largest cities.
Oil and gas drilling continues to recover. Although the District's rotary rig count remains below mid-1988 levels, it is nearly [unintelligible] percent above the January 1989 count. Respondents note that they are expanding drilling cautiously. Although they are pleased with reports showing strong worldwide petroleum consumption, they fear that Kuwait and debt-burdened Iran and Iraq could increase production significantly, causing prices to fall. Some producers say they are using revenues from higher oil prices to improve their balance sheet rather than increase exploration.
Weather and prices are the chief concerns in agriculture. Increased soil moisture has raised crop and forage potentials in much of the District, but drought remains a concern in south Texas, the Panhandle, and New Mexico. Furthermore, rain has been accompanied by hail and flood damage in some areas. Excess moisture has become a problem in Louisiana and eastern Texas. In June, prices paid to Texas farmers averaged 2 percent above a year earlier, chiefly as a result of a 6 percent increase in livestock prices. Crop prices are 7 percent below a year earlier. Lower prices for corn, oats and grain sorghum more than offset higher prices for cotton, hay, potatoes and wheat. Both crop and livestock prices were slightly lower in June than in May.