Beige Book Report: Dallas
September 19, 1990
The District economy continues to grow slowly. Orders for manufactured goods have shown little overall change. Retail sales have recently slowed. Auto sales slowed in early August but have since improved. Economic activity has increased in the service sector. The construction sector continues a mild improvement. Higher oil prices are stimulating increased production from existing wells but have not yet motivated new drilling. Recent rains have improved conditions for District farmers and ranchers.
Overall, manufacturing production and orders have not changed significantly during the past month, although orders for construction-related products have declined. Manufacturing inventories generally are at desired levels. Most respondents are concerned about the outlook for the U.S. economy now that oil prices have risen. Also, many industries are concerned about higher transportation costs due to the jump in oil prices. One food wholesaler is already planning to curtail costs by reducing deliveries from five to four per week. Recent oil price increases have had only a small effect on the demand for oil field machinery but respondents expect strong gains next year if oil prices remain high. Chemical producers say that product demand remains strong and they are switching feedstocks to reduce the impact of rising oil prices. Orders and production continue strong in the petroleum refining industry and producers are increasing product prices in line with crude costs. Refiners say that they have not experienced any shortages of oil. Steel production continues at high rates due to declines in imports, and producers continue to be optimistic about demand in the near future. Primary metal producers in the District generally say that oil is not a significant energy source in their production process. Respondents in the apparel industry note a mild increase in sales and are cautiously optimistic about the next few months. For electronics producers, orders generally remain weak but several noted that sales to the telecommunications industry are strong. Demand for fabricated metals remains soft. Among stone, clay, and glass producers, a glass producer says sales have decreased significantly and a producer of concrete pipe notes a gradual slowing. Lumber and wood products producers say that demand from home builders has declined but one producer noted an increase in demand from lumber yards.
District retail sales have slowed significantly over the last few weeks. Respondents feel that uncertainty about problems in the Middle East has caused consumers to hold back purchases. Weakness is widespread across most product lines but respondents note a particular softness in durable goods. Discount stores continue to experience slightly stronger sales than other retailers.
District auto sales increased moderately in July. Sales growth was strong in the Houston area and mild in the Dallas/Ft. Worth area. Sales flattened in the first two weeks of August but picked up slightly during the second half of the month. Respondents note no increase in the relative demand for fuel-efficient vehicles.
Activity in the District service sector has increased. Temporary employment agencies say that demand is increasing strongly. A respondent in San Antonio said much of the demand is from firms which are reluctant to hire full time workers because the economy is slow. An accounting firm says that activity has picked up due to demand from the Resolution Trust Corporation. Consulting firms note continued increases in the demand for office automation and management services. An increase in economic activity in Austin and Houston has created a slight increase in demand for legal services.
District construction activity continues to grow slowly. Most of the recent growth stems from increased residential construction in Texas. Single and multifamily building permits have increased. District nonresidential and nonbuilding construction remain weak. Nonresidential contract values are up but remain below levels reached last year. Respondents do not expect an upturn in commercial and industrial construction for at least another year. Nonbuilding contract values have fallen and respondents note that expenditures on state highways should continue to decrease in Texas but increase in Louisiana.
Recent gains in the oil price have not stimulated new drilling. The District drilling rig count declined in July and August. Respondents in the energy industry say that they are uncertain about what price will be sustained. Production from existing wells should increase, though, as increased revenues are used to upgrade old wells and reopen dormant wells. Most of the work will be done on stripper wells which produce less than ten barrels of oil per day. Some enhanced recovery procedures have also become profitable. Production should increase about 1.1 percent due to the lifting of production ceilings by the Texas Railroad Commission. One respondent noted that about half of the current drilling is for natural gas which has not yet increased in price.
Recent rainfall has improved conditions for District farmers and ranchers, although some dryland cotton and corn crops were already destroyed. Ranges and pastures have improved significantly in many areas. August prices received by Texas farmers and ranchers increased 7 percent from last year and 2 percent from July. Rice prices continue to drop and are now 9 percent below a year earlier. Rice prices are expected to remain depressed until mills find alternatives to their Iraqi customers.