Beige Book Report: Dallas
January 24, 1990
Respondents report that District economic growth has accelerated since the last Beige Book survey. Demand for manufactured products is increasing, after showing some softness in November. A number of firms report that retail sales growth in the District is faster than the national average. Auto sales are weak. Service industries continue to expand. Energy activity is picking up. A modest recovery is taking place in construction. Agriculture was hard hit by December's severely cold weather.
District manufacturing has resumed its expansion according to surveyed firms. Year-over-year growth in sales of oilfield equipment accelerated during the fourth quarter, and a significant portion of this upturn was attributed to increased exports. Primary metals producers say demand and prices weakened in November and again in December and that their product inventories are undesirably high. Although a number of fabricated metals manufacturers cite rising sales, those that sell to the construction industry note that December's extreme cold wave led to a greater-than-normal falloffs in the season's normally weak demand. Reports by lumber and wood products producers vary greatly, but most firms say their sales are increasing and firms serving the Houston market are particularly positive. Fourth quarter demand for paper and board was up over the third quarter but weaker than a year earlier. Several firms noted problems of overcapacity in the industry. Stone, clay, and glass producers generally cite little recent change in their demand, although manufacturers of auto glass say their sales are declining markedly. Manufacturers of electronics and computer-related products report that demand recently has turned up, following a period of softness, and they are cautiously optimistic for the rest of 1990. District food products respondents note year-over-year growth in sales volume. Demand for apparel is expanding somewhat. Chemicals producers say their selling prices have stopped falling and demand has leveled off, but December's severe freeze caused widespread shutdowns along the Gulf Coast. Respondents in the chemical industry continue to voice fears about what continued expansions in capacity will do to product prices. Demand for petroleum products rose markedly as a result of December's cold weather but, after adjustment for this phenomenon, sales are little changed overall.
Retail sales showed strong growth during the holiday shopping season and a number of national chains said their sales grew more rapidly in the District than nationally. Sales expansion in the Dallas/Ft. Worth and Houston areas was said to be particularly strong, with slower upturns in San Antonio and Austin and still weaker growth in west Texas. Retailers expect sales growth to slow in 1990.
District auto dealers note that sales generally remain weak, despite the usual surge during the last week of the year. Profits are said to be poor, not only because of slow sales, but because of strong discounting, and a large number of dealers are currently operating at a loss. Respondents expect some increase in unit sales in 1990, but they are more cautious in their expectations about profits.
Most service-related firms in the District report continued expansion in sales and employment, with data-processing and accounting firms noting particularly strong growth. Airlines, however, reported some softening. Generally, service industry respondents expect slower growth in 1990 than in 1989.
December's severe cold disrupted District construction operations, but contract values continue to edge up. Nonresidential building has provided most of the gains, but nonbuilding construction contract values also have begun to rise. Apartment occupancy rates have been climbing, reaching 90 percent in Houston and Dallas, and increased multifamily construction is widely expected for 1990. Office building occupancy also is increasing, but only slight office construction growth is expected this year.
The District oil and gas drilling industry continues to expand gradually. The unusually cold weather in December pushed the average price of West Texas Intermediate crude oil up 7.3 percent to 21.24 dollars per barrel and prices temporarily jumped to more than $23 per barrel in early January. Prices have since subsided, but respondents believe that oil prices in 1990 will remain higher than in 1989. Drilling activity has been increasing, after seasonal adjustment. Profits are said to have risen, not only because of higher oil prices but because of reduced drilling costs.
December's hard freeze caused major disruption to District agriculture. In south Texas, about 50 percent of the citrus crop was destroyed. The freeze not only destroyed unharvested citrus fruits, but it also killed or damaged unharvested vegetable crops including broccoli, celery, lettuce, cabbage, onions, peppers, tomatoes, and sugar cane. The nursery industry has also reported damage. December crop prices were 3 percent above a year earlier, but further increases in prices have already occurred since then. Livestock prices in December were up 6 percent over a year earlier.