Beige Book Report: Dallas
May 1, 1991
District industries are feeling the negative effects of a slowing national economy and are no longer benefiting from the positive effects of higher oil prices. Compared with the last survey, overall output is unchanged to slightly down. Manufacturing orders have decreased a little. Service sector growth is positive but weak. Retail sales have been flat to down. Auto sales have fallen and sales are now well below last year's level. Low oil and gas prices have dampened production and drilling efforts. Growth continues in Houston, but at a slower rate than during recent surveys. Respondents in construction and in some manufacturing industries expect positive effects from Kuwait's rebuilding.
Manufacturing orders have declined slightly. Industries that serve the entire nation have seen a drop in orders from outside the District, but orders within the District are edging up. Demand for construction-related products such as lumber, stone, shell, clay, glass, primary metals and some fabricated metals are below a year earlier. The demand for glass and primary metals has also been reduced by weakness in the auto industry. Orders for chemicals have declined and respondents have excess inventories. The U.S. slowdown is said to have reduced the demand for plastics. Petroleum refiners say that product prices and sales volumes are stable, and that low oil prices have raised margins to their highest levels since 1980. Although reduced drilling activity and low natural gas prices are said to have caused sales of oil field machinery to drop recently, demand remains unchanged or slightly up from a year earlier. Paper producers note that, while sales volumes have increased, profits have been squeezed because of heavy price competition. Apparel orders continue to rise and demand is above a year earlier. Demand for electronics is flat to slightly up. Sales of high-end microprocessors are strong while orders for low-end microprocessors are sluggish. Food products sales have shown little change.
Growth in business services has been slow but positive, and most respondents do not expect expansion to return to robust rates in the near future. Prices are stable but few firms expect to be hiring much in 1991. Demand has weakened at some temporary firms. Demand is flat for accounting, advertising and law firms. Lower fuel costs and fuller planes have benefited District airlines. Houston is reporting more strength in services than most areas of the District.
Retail sales are flat to down, and sales of consumer durables have been particularly sluggish. Retailers continue to mark down selling prices, but say that inventories are at acceptable levels. Sales in the Houston area have slowed but remain positive and continue to outperform those in the rest of the District.
District motor vehicle sales are markedly below a year earlier. Dallas-Fort Worth metropolitan area sales dipped 5 percent in March. Auto sales were flat while truck sales dropped 19 percent. Overall, year-to-date sales in the Dallas-Fort Worth area are now 10 percent below last year. Auto sales in Houston fell 26 percent in March. Year-to-date sales in Houston are 14 percent below last year.
Energy extraction has slowed. Respondents say that low oil and gas prices are dampening production and drilling efforts. The end of the Middle East crisis has brought stability to the oil market, albeit at lower prices. Oil prices have settled around $20 per barrel. Although this price is considerably less than oil prices during the crisis, it is little changed from a year ago. Natural gas prices, however, are the lowest they have been in several years.
Construction activity in the Eleventh District remains very sluggish. Growth has been slight to zero since last year and some respondents say that tight credit and uncertainty over the future effects of RTC behavior are significant reasons. Nevertheless, construction has been performing more positively in the District than in the nation. Single-family residential building has lately increased a little, but remains below a year earlier. Multi-family building has also recently turned up somewhat. Nonresidential construction has shown little recent change. Nonbuilding construction activity is also slow, but is slightly above last year's level.
District agricultural producers have begun to plant their crops. Prices for cotton, grain sorghum and soybeans have increased and producers are indicating that they intend to plant more acres of these crops. If full acreage intentions are planted, this will be the largest upland acreage for Texas since 1981. Planting intentions for corn, soybeans and sunflowers are down from last year. Texas winter wheat acreage is 7 percent less than a year ago. Overall crop prices remain 2 percent below last year's level. Livestock prices continue to increase, up 2 percent from last year and up 3 percent from February's level.