Beige Book Report: Dallas
March 10, 1993
The District economy has grown moderately since the last survey. Manufacturing activity has accelerated and business services continue to expand at a moderate pace. Many manufacturers report employment gains although several say that the increasing cost of employee benefits continue to restrict their hiring. Accounting and legal firms report a slight rise in activity. Retailers say that sales have held steady after a strong increase in the fourth quarter. Mortgage activity is increasing at District financial institutions although business loan demand remains weak. The drilling rig count has declined due to the expiration of tax credits, weak oil prices and normal seasonal factors. Agricultural conditions have improved slightly.
Manufacturing activity continues to accelerate. Average weekly hours worked in manufacturing in Texas hit a historical high of 43.4 hours in December. Several respondents say that, in response to continued growth in orders, they have recently begun to increase employment and reduce overtime. Many respondents, however, note that continued increases in non-wage benefit costs have caused them to resist hiring. Most manufacturing industries report gains in orders with the exception of oil field equipment, refining and petrochemicals. Petrochemical producers report that margins have shrunk due to declining international demand and growing production capacity. The expiration of drilling tax credits at the end of 1992 has reduced the demand for drilling equipment. Construction-related manufacturing industries continue to report robust sales. Sales of lumber and wood products are reported to be particularly strong and prices have increased sharply. Orders for primary metals have risen and respondents report recent gains in employment. Fabricated metals producers report a continued gradual increase in both orders and employment. Producers of electric and electronic machinery, and food and kindred products report strong orders.
The construction sector continues to be dominated by strength in residential building. Home inventories are generally lean and prices are edging up. Home prices are expected to get a further boost due to a strong increase in the price of lumber. Despite the likely increase in building costs, home builders remain optimistic about the industry in 1993. The office market remains overbuilt in most areas of the District. Respondents report that there is unlikely to be a significant increase in office construction this year.
Oil and gas drilling has dropped sharply since the end of December. Respondents say the decline is due to the end of Section 29 tax credits, weak oil prices, and normal seasonal factors. Following OPEC's movement of their target range for oil prices, oil prices rose in February for the first monthly increase since last September. Respondents note, however, that futures prices for oil, which during the latter part of February were flat for second quarter delivery, suggest that OPEC will not cut production enough to balance the market. Natural gas prices have been edging up and remain significantly above the levels of a year ago. Respondents say that the recent Increase was due to cold weather in February and low storage levels.
The service sector continues to grow slowly. Most sectors report flat to moderate employment gains. Temporary employment agencies say that demand from the manufacturing sector has increased and several respondents report an increase in fees. After adjusting for a seasonal rise, accounting firms report only a slight increase in demand and employment. One consulting firm noted that a slowdown in RTC activity has reduced his business. Law firms report little change in activity although employment has risen slightly. Respondents in the hotel industry note a recent rise in occupancy.
Home financing and refinancing has been a source of strength to District financial institutions. Business lending remains sluggish and several respondents report either slowing or declining loan demand over the past few months. Regulatory burden and slow loan demand were cited as the most onerous constraints on loan growth. Most respondents were optimistic that conditions would improve during the next several quarters.
Retail sales respondents say that sales have been steady since the last survey. Sales in Houston are reported to be weaker than in most areas of the District. Sales of furniture and other home goods are reported to be particularly strong. Auto sales are sluggish, although respondents say that the outlook for sales has improved.
Agricultural conditions have improved slightly since the last survey. Respondents say that favorable weather in many parts of the District has improved field conditions. Prices for the majority of livestock commodities increased slightly in January and were 5 percent higher than last year. Prices for crops remained relatively stable in January but were 14 percent lower than last year's levels.