Beige Book Report: Dallas
January 21, 1993
While District economic activity continues to grow moderately overall, signs of a slight acceleration have begun to appear in some sectors. Most prices are reported to be stable, although those of some construction-related manufacturing products have increased. Optimism is pervasive across industries. Orders to manufacturing and service firms have increased. District retail and auto sales continue to expand at a moderately strong rate in general, although retail sales along the Mexican border appear to have fallen from a year ago. Construction and real estate activity continue to pick up. End-of-year oil field activity was particularly strong but overall the energy industry remains weak. The financial industry reports rising deposits but little change in loan demand. Agricultural yields were reported as good in most areas, but prices have declined slightly.
Manufacturing activity is picking up. Production increases are greatest for construction-related products, largely because of continued expansion in homebuilding. Demand remains strong for brick, cement, lumber and construction-related fabricated metals. Prices have been increasing for these products. Demand for oil and gas-related fabricated metals remains slow overall, but foreign demand recently picked up somewhat. Production of primary metals increased slightly last month. Part of the expansion was said to reflect an anticipated January 1 increase in the price of steel. Sales of glass to automakers have increased because of an expected uptick in nationwide auto sales; prices remain stable. Demand continues to be strong for personal computers and telecommunication equipment. Orders to chemical producers are mixed. A worldwide oversupply of industrial chemicals has slowed production and held prices stable but sales of pharmaceutical chemicals are strong and prices have increased. An end-of-year surge in domestic drilling boosted demand for oil field equipment. Sales of paper products remain above last year's level. Demand for food and kindred products has picked up slightly. Production of denim products continues to grow at a moderate rate while producers of high-end apparel report weak sales.
The growth rate of the service activity has increased slightly but optimism has increased more. Demand has picked up slightly and some firms have increased hiring. Respondents note that they are expanding cautiously, however, and only in response to stronger sales. Prices are generally stable. District state governments face budget problems although no hiring freezes have been implemented. New Mexico is the only District state expecting a budget surplus this year. Louisiana is expecting a $900 million budget deficit and has proposed a 40 percent cut in state funding to higher education this year. The state is implementing riverboat gambling to raise revenue and produce jobs.
District retail and auto sales continue to grow at a moderately strong rate. Retailers report that prices are still competitive but inventories have been reduced without significant discounting. Wage costs are the same or lower than last year. Consumers have greatly increased credit card purchases, and one retailer speculated that this may be an indication of increased consumer confidence. District metropolitan areas, which had experienced sluggish retail sales growth throughout most of 1992, have now improved. Typically robust sales along the Mexican border, however, fell absolutely because of what respondents said was increased enforcement of import restrictions by the Mexican government.
Construction and real estate activity continue to increase slowly. Occupancy rates and rents have increased for multi-family real estate in Dallas and Austin, although rents in Fort Worth remain unchanged. New home demand is strong in Dallas, Austin and Houston. The office real estate market remains weak with the exception of Austin where rents are rising and office vacancy rates are falling. Austin is the District's first major metropolitan area in a decade to have office vacancy rates below the national average. While office vacancy rates are still high in Dallas, one respondent noted that prices have dropped to a point where property sales have begun to pick up. Industrial vacancy rates have fallen recently and rents seem to have stabilized after falling for the past several years.
Expiring tax credits stimulated end-of-year oil field activity but low prices and weak demand have generally slowed the energy industry. Growing world inventories have kept crude oil prices hovering around $20 per barrel. Although natural gas prices are above last year's level, prices have weakened since October because of adequate supplies and competition from low oil prices. Some respondents expect natural gas prices to continue to decline. Refining margins remain low and profits have been estimated to be at their lowest levels since 1987. Many refineries have reduced capacity. After peaking at 935 in mid-December, the rig count ended the year just above 700 rigs, well below the 860 of 1991. A larger than normal spurt of natural gas drilling was prompted by expiring tax credits which reduced costs for wells started by December 31. A slump in drilling is certain in January, although changes in the Alternative Minimum Tax will mitigate the loss of expired tax credits.
The financial industry reports rising deposits but little change in loan demand. Refinancing on residential and commercial properties continues to boost real estate lending activity and fee income.
Agricultural respondents in most areas of the District report higher yields but lower prices. Production in 1992 will be less than in 1991 because producers planted fewer acres. Prices for most commodities are below year-earlier levels. The December Texas All Farm Products Index of Prices Received was 2.5 percent below December 1991. Prices are slightly higher for livestock commodities but lower for most crops.