August 7, 1991
Economic activity in the Eleventh District is increasing very slowly. Output growth weakened in June but began showing signs of strength by the end of July. Many respondents noted that stiff competition had reduced prices and depressed profits. Firms in the Dallas-Fort Worth Metroplex generally reported weaker sales than in the rest of the District. Department store sales have increased slightly, but auto sales are down sharply from last year. Service-sector growth is reported to be weak. Manufacturing orders have slowed but continue to increase. Energy activity has been flat. Construction activity has been growing very slowly, but has exceeded respondents' expectations. One exception is commercial construction, where activity remains weak. Agricultural conditions are good, but price declines, lower government payments and rising costs will lower income this year.
Output in the service sector has increased only slightly since the last survey. Most industries report that competition has caused downward pressure on prices. More recently, respondents have noted some increases in demand and further evidence that demand will pick up. Demand for business services had been flat until recently, when there were some increases outside Dallas-Fort Worth. Engineering firms reported a modest increase in contracts resulting mostly from changes in state laws. Transportation and temporary employment agencies also reported slow growth. The rate of growth of government employment has been slowing, with some local governments reporting layoffs.
Growth in retail sales slowed in June but shows signs of picking up in July. Year-to-date sales are even or just above last year, in real terms. Discount retailers noted that their purchase prices have been moving up faster than their selling prices. This, along with recent increases in the minimum wage, has raised costs and reduced profits. Sales of home furnishings remain slow, but clothing sales are increasing and seasonal merchandise is selling well. Dallas area sales growth generally is the weakest in the District but about even with the nation. In Houston, sales growth has slowed but is still increasing moderately. June auto sales fell nearly 20 percent in both Houston and Dallas. Year-to-date auto sales are 10 percent below last year's level.
Overall, growth in orders to District manufacturers has slowed, but orders continue to increase. The electronics industry experienced a seasonal drop in demand, although demand remains above last year's level. The increased demand has mostly been in the high-end of the industry-especially the 386 microprocessor-and production capacity for these high-end chips has been increased. Chemical demand has stabilized following declines in the first part of the year. The slow national economy continues to limit demand for chemicals used to make plastics, and inventories were reported to be up slightly. Selling prices for these chemicals continue to fall, although the decline has slowed. Input prices are flat and profits are down. Sales of primary metals have increased mildly, but prices have declined. Meanwhile, a stronger dollar has reduced foreign sales. Demand for glass products is up seasonally but prices are very low. Demand for fabricated metals continues to decrease, mostly because of a lack of building within the region. Both selling prices and input prices are declining. Demand for lumber products stabilized after both demand and prices picked up briefly following wet weather in March and April. Respondents expected demand to remain flat throughout the year. Demand for paper products is below a year ago. Demand for oil field machinery has recently declined and is now about even with last year. Low natural gas prices have reduced demand for oil field equipment, but foreign demand and chemical plant construction have mitigated the decline. Demand for apparel has increased, particularly for denim products and dresses.
District oil and gas activity has been flat. West Texas Intermediate prices have been relatively stable, ranging from $20 to $22 per barrel in the past six months. Natural gas prices, on the other hand, are at their lowest level in 12 years. Overall, the District rig count has fallen, mainly because of decreases in gas rigs. Wet weather has been a problem in Louisiana. Energy firms are downsizing and consolidating, and several firms have announced layoffs.
District construction activity is slow but better than respondents had expected. Residential demand has held steady despite defense- related layoffs in some areas. Home sales may have been spurred in June by the announcement of a July 1 increase in FHA mortgage insurance premiums. Multi-family demand is slow, although rents have increased. Office and industrial vacancy rates have increased in several District cities.
Respondents report good District agricultural conditions, although low prices and rising expenses will reduce income. Good yield prospects, along with slow domestic and export demand, have reduced most commodity prices. Rice prices, however, remain high because of strong world demand and poor yields. Livestock prices have declined 4 percent from last year but remain strong. The peach harvest is the best in several years.