Beige Book Report: Dallas
June 19, 1991
The 11th District economy has improved since the last survey. Respondents note a slight pickup in orders and a more optimistic outlook. Much of the recent improvement stems from a mild pickup in District residential construction and some recent gains in consumer spending. Producers of lumber and wood, stone, clay and glass, and primary and fabricated metals have noted increased orders from District homebuilders. District retail sales have increased slightly and many retailers say the outlook has improved. Growth in the service sector has increased to a modest pace with improvement in the hotel, advertising and temporary employment industries. Extreme weather conditions have slowed planting in some areas and estimates of crop production have been reduced slightly.
Overall, orders to District manufacturers have improved and are growing modestly. A main source of growth has been increased orders from District home builders. Demand has increased for brick manufacturers because of increased residential construction in Houston, Dallas and Austin. Brick producers expect demand to continue to grow as credit to builders is loosened. Lumber and wood producers note a sharp increase in production. While improved weather conditions are responsible for much of the recent increase, increases in Texas home and store construction was responsible for much of the gain. Most contacts in the lumber industry feel that the U.S recession has finally bottomed out and demand should improve gradually. Demand for primary metals has been steady to up slightly, following a weak January and February. Increases in residential construction in Texas and continued strong exports have helped this sector. Orders for chemicals have stabilized following declines during January and February. Weakness in the auto sector, however, continues to suppress demand for plastics and related industries. Petroleum refining has been holding steady. Oil field machinery production has declined slightly due to decreased domestic drilling. Several apparel producers say that orders have recently jumped.
Although the District's business services are still reporting weak demand, several other service industries have noted improvement. The demand for legal services has been weak, although strength was reported in Houston and Austin where the Resolution Trust Corporation is now very active. Temporary employment agencies are seeing increased demand for services, and one firm noted strength in both the District and the nation. After declining dramatically for over a year, national and international demand for engineering services reportedly has bottomed out and recently has increased slightly. Advertising and communications firms noted large increases in demand from regional customers. Hotel occupancy rates continue to pick up slightly and airlines report stable to slightly improved demand.
Retail respondents in the District say that sales have improved and are now growing slowly. Sales in Houston are reportedly the strongest, while sales in Austin and along the Texas Border are also experiencing positive growth. Sales are weakest in the Dallas-Fort Worth Metroplex where recent defense-related layoffs have increased unemployment. Dallas-Fort Worth sales remain positive although very slow. Most retailers are optimistic that sales growth will improve in the coming months.
District auto sales have increased lately, but year-to-date sales remain well below last year. April auto sales in the Dallas/Fort- Worth metroplex were up 2.4 percent over last year, although year- to-date sales remain nearly 7 percent below last year. Houston sales were up 10 percent year-over-year in April, but year-to-date sales remained 8 percent below last year.
Oil prices have stabilized around $20 per barrel after the end of the Middle East war. Prices should stay stable through the third quarter because OPEC has decided to hold production at current levels. District drilling has declined despite the price stability. The low drilling activity is partly due to low natural gas prices which are about 20 percent less than a year ago. Although domestic drilling activity is weak, foreign drilling by District oil and gas companies is healthy and is expected to pick up.
District construction activity has increased moderately due to some recent strength in single-family building. One respondent thought that the recent surge may be pent up demand from the Middle East war and may not continue. The multi-family sector is weak, but the outlook for this sector remains positive. There has been a significant slowdown in demand for civil-related projects (highways, infrastructure and public buildings) in Texas. The only area of growth in public structures has been prison building.
Extreme weather conditions have slowed planting in some areas of the District and agricultural production estimates have been reduced slightly. Dry conditions in West Texas and the Texas panhandle have reduced production estimates for wheat and cotton crops. Louisiana, north central Texas and portions of the coast have reported problems with excessive moisture. The index of agricultural prices received by Texas farmers and ranchers reached a record high in May, increasing 5 percent from last year.