September 23, 1992
Economic activity appears to have improved slightly since the last survey. While overall growth remains sluggish, many respondents note increased optimism about the outlook. Few respondents report declining activity. Respondents from several manufacturing industries report significant sales gains. Service sector respondents say that demand has increased slightly and many report increased employment. Little growth is reported in department store sales although auto sales are generally reported to be up from year- ago levels. Residential construction is increasing strongly. Declines in the energy industry have abated and respondents say that it is likely that the bottom has been reached. Banks report flat to slightly growing loan demand. Agricultural conditions are mixed.
While most manufacturing respondents note flat or slightly increasing orders, respondents from several industries report strong gains. Respondents generally report increased optimism about the outlook. Industries which are tied to single-family construction report strong sales. One brick manufacturer reported that production was running at full capacity and that backlogs of unfilled orders were growing. Most lumber and wood producers note strong gains in demand and prices due to continued growth in regional home building and the effects of Hurricane Andrew. Orders for cement and concrete, which are tied mostly to road construction, have slowed recently but remain significantly above levels of 6 and 12 months ago. Several producers of electrical equipment say that while growth in new orders recently has slowed, production continues at full capacity. Producers of primary and fabricated metals report flat to slightly improved orders. Oil field equipment manufacturers note a slight improvement in orders. Conditions in the petrochemical and refining industries remain weak. Paper producers generally note slight gains in orders although a manufacturer of corrugated boxes says that orders are strong and that production is at full capacity.
Growth in the service sector has improved slightly but remains modest. Accounting and legal firms report an increase in activity for transactions type business such as mergers and acquisitions, real estate purchases and new business start-ups. The increased activity along with an improved outlook has motivated employment gains. Respondents in the amusement industry report strong summer sales. Temporary services report flat demand. Many respondents note that businesses are in a wait-and-see attitude until after the election.
Retail sales at general merchandise stores are reported to be sluggish in most of the major markets. Sales are particularly weak in the Houston area. Respondents say that sales in the Dallas/Ft. Worth area are sluggish while sales have improved moderately in the San Antonio/Austin area. Sales along the Mexican border remain strong. Respondents in the auto industry report that sales generally have remained higher than year-earlier levels.
Single-family home construction has rebounded from a brief respite in May and June. Respondents say that inventories of new homes remain low mostly because financial institutions will not lend for speculative purposes. For the first seven months of this year, seasonally-adjusted single-family building permits averaged 5,547 permits per month which is an increase of 25.7 percent from 1991 but still 30.8 percent below the average for the first half of the 1980s. Office demand remains weak overall and any significant turnaround in office construction is not likely to occur for at least three years. Industrial construction remains weak, although respondents in El Paso expect a pickup due to increased trade with Mexico.
There is a growing consensus that the bottom has been reached in oil and gas drilling. Respondents say that stronger natural gas prices and the Energy Bill, if passed, will provide increased cash flow for drillers. An existing tax credit for tight sands gas drilling which is set to expire at the end of the year should continue to stimulate drilling through year end. Hurricane Andrew caused extensive damage to platforms and pipelines in the Gulf of Mexico. The damage has temporarily reduced the supply of natural gas and has boosted natural gas prices. Cool spring weather and depleted storage had already caused a rebound in natural gas prices from lows reached last winter. Respondents say that without Andrew, natural gas prices would have taken their normal seasonal increase this winter but with repairs in the Gulf taking as long as three to four months, prices are likely to rise above the normal seasonal increase.
Half of the respondents in the banking industry report that loan demand has been flat while the other half say that loan demand has increased slightly. Respondents say that the largest constraint on growth is lack of loan demand from qualified borrowers.
Agricultural conditions are mixed. Respondents report that livestock prices are still considered good, but are below last year's prices. District cotton income is uncertain. Continued cool and damp weather has hindered cotton farmers. Cotton yields are likely to decline but respondents say it is too early to predict the amount of damage.