Beige Book Report: Dallas
March 14, 1990
The District economy is growing slowly but persistently. Manufacturing orders are up slightly. Retail sales growth is moderate to strong. Auto sales have begun a modest rebound. The service sector continues to expand. Despite slipping construction contract values, employment is growing in that industry. Oil and gas drilling activity posted strong year-over-year gains in February. Drought and freezing weather have caused problems in agriculture, but product prices are up markedly.
Manufacturing sales have shown slight growth on net, but a large number of respondents report little change in either direction. Oilfield equipment manufacturers say that stable, high oil prices have led to year-over-year growth in sales, but some respondents note that seasonal factors have softened domestic orders for now. Foreign demand is cited as very strong. Among primary metals producers, orders to iron and steel firms are steady while orders for aluminum have softened compared to last year's extremes, but remain high. In fabricated metals, demand has changed little overall, but sales in the District have picked up very slightly while those to northeastern firms have slackened. Lumber and wood products sales are also generally steady. Reports by stone, clay and glass producers are very mixed, with strong growth for some Houston- area firms and more sluggish sales elsewhere. Demand for electronics-related products has lately showed little change overall, but manufacturers are almost uniformly optimistic about growth during the second half of 1990. Food products companies note overall expansion in sales, with strong recent upticks in fast-food- related sales that are suspected to be weather-related. Apparel orders are generally increasing; some firms said that unexpectedly high rates of growth had led to undesirably low inventories. In San Antonio, however, a large apparel firm closed its plant and moved it to the Caribbean, leaving 1,100 workers unemployed. Demand for chemical products has slipped somewhat, compared to a year earlier, but volume is still very high. Selling prices have softened. By contrast, sales of refined petroleum products are above a year earlier although they have slipped, after peaking during December's extreme cold wave.
Among retailers, sales growth ranges from moderate to strong, and several chain stores note that rates of expansion for the District are higher than for the nation. Some respondents cited heavy discounting, however. Sales expansion rates are particularly high in cities near the Mexican border, owing to the strength of the peso. Sales growth in the Dallas/Ft. Worth area was also strong, with more moderate expansion in Houston.
District auto dealers note that sales are higher than a year earlier, but they are holding inventories to low levels. Dealers say they are having difficulty getting credit for their customers. A Houston respondent noted that this is sometimes a particularly acute problem there, because of personal credit history problems left over from the oil-related economic weakness of 1982-86.
The District services sector continues to show expansion, but with a good deal of variance among individual sectors. The business services sector is showing particular strength. Some medical-service related firms note that the first quarter has been soft so far.
The recovery in District construction has begun to slow. Nonresidential contract values have declined steeply, chiefly because of a drop in new petrochemical plant construction. Residential contract values have also recently slipped. Respondents say they nevertheless expect growth this year in both single-family and multifamily activity, as a result of falling apartment vacancy rates and of pent-up demand for single-family homes.
Oil and gas drilling activity continues to rise. Although oil prices have slipped somewhat from the high levels of January, they remain well above a year ago. Drilling has picked up sharply. In late February, the rig count was 33 percent higher than a year earlier. Applications of the new horizontal drilling technology have resulted in marked growth in extraction activity in some areas of the District. Despite the recent strong expansions in the rig count, a number of respondents expect overall District drilling activity to increase at a modest pace for the rest of 1990.
Drought and freeze damage are causing problems in District agriculture, but product prices have reached their highest levels since 1984. Subnormal soil moisture levels are impairing crop and livestock operations throughout Texas and New Mexico. Winter wheat is showing signs of drought damage. In south Texas, prolonged dryness has left virtually no subsoil moisture. As a result of December's freeze, it may be two years before marketable citrus can again be produced in the Rio Grande Valley of Texas. In January, the Texas All Crops Index of farm prices rose to its highest level since 1984, and was 6 percent above a year earlier, with grapefruit prices leading the increase.