December 9, 1992
Economic growth in the Eleventh District has increased since the last survey. Respondents from most sectors of the economy report a noticeable rise in orders and an improved outlook. Manufacturing respondents note improved economic conditions with the exception of continued weak international demand. Responses from business service firms confirm a general improvement in the regional economy. Construction and real estate activity continues to be boosted by strength in residential home building. Pre-holiday retail sales were stronger than expected and retailers are optimistic about the holiday season. Oil and gas drilling has been increasing, partly due to temporary factors. Banks report an increase in real estate and consumer lending. Farm net income is expected to decline in 1992.
Most manufacturing respondents report an increase in orders and an improved outlook for 1993. Construction-related industries continue to report strong growth in orders. Brick demand has been particularly strong. Respondents in electrical and electronic equipment say that demand has picked up, particularly in telecommunications, computers, and construction-related products. A producer of primary metal says that orders improved in mid-November but that the outlook remains cautious because of the continued weakness in the international economy. Apparel demand is reported to be strong, particularly for denim products. Producers of corrugated boxes and newsprint report sizable gains in sales. Demand for oil field equipment has increased due to strength in natural gas prices and the year-end expiration of a tax credit for certain types of natural gas drilling. Respondents in the petrochemical industry say that orders have been flat due to increased world capacity and weak economic conditions in Europe.
Construction and real estate activity continues to be buoyed by strength in single-family home construction. Most of the major markets in the District report strong gains in single-family housing starts. One respondent notes that in 1992 new home sales in the Dallas/Ft. Worth area will be the strongest in five years. Most of the major office markets remain weak although occupancy rates and rents in Austin continue to rise. Energy sector restructurings are contributing to weakness in the Houston office market.
Business services firms note an increase in demand from a broad array of economic sectors. Temporary employment agencies in Dallas/Ft. Worth and San Antonio cite seasonally-adjusted gains in demand from the manufacturing sector. A temporary employment agency in Louisiana notes a sharp rise in demand due to a resurgence in oil and gas activity and in industrial construction. An accounting firm respondent says that overall demand continues to be subdued by the advent of better software programs which allow small businesses to do their own bookkeeping. Despite this trend, however, most respondents in the accounting/consulting industry note a moderate rise in demand from the manufacturing, retail and energy sectors. The Texas/Mexico border was noted as particularly strong. While the demand for legal services is reported as flat to slightly up, one respondent says that the health care industry was "stronger than a horseradish."
Most respondents say that pre-holiday retail sales in the District were better than projected and that they now expect the holiday season to be the strongest in several years. Respondents from national retail companies say that sales from their Texas stores have been stronger than the national average. New car sales were down sharply in October. Respondents say that most of the fall was due a new agreement between auto manufacturers and rental companies that prolongs the time which rental companies hold cars. After adjusting for the decline in fleet sales, auto sales were down only slightly.
District oil and gas drilling has improved sharply. Respondents say that a historically high 53 percent of the rigs running are searching for natural gas. Section 29 tax credits for natural gas drilling, which are set to expire at year-end, have motivated much of the rise in drilling activity. Oil and natural gas prices drifted down throughout much of November. Respondents say that oil prices are being influenced by the weak world economy and strong OPEC production. While natural gas prices have slipped, the recent spot price for November delivery was 30 percent higher than November, 1991. Respondents say that inventories of natural gas remain tight and that an unseasonably cold winter could spur price increases.
Banking industry respondents note a recent pick up in residential real estate and consumer lending. Most banks, however, continue to say that there is a shortage of loan demand from quality borrowers and that business loans continue to decline. Most respondents expect a moderate increase in loan demand over the next 12 months.
Agricultural respondents say that 1992 is turning out to be a weak year for District farming although ranchers are likely to have a good year. Farm net income in the District is expected to decrease in 1992 due to lower prices for commodities, decreased government subsidies, and increased production costs.