Beige Book Report: Dallas
May 4, 1994
Economic activity continued to expand at a moderate pace. Price pressures were mixed. Additional hiring led to scattered wage pressures in some industries. Manufacturers reported an increase in orders. Business service firms said that demand was higher and that prices were generally stable or lower. Construction and real estate demand increased leading to higher prices in several markets. Strength in natural gas prices kept energy activity stronger than expected despite weakness in oil prices. Agricultural conditions improved.
Manufacturing orders increased, leading to hiring and scattered wage pressures. Price movements were mixed. Demand for construction- related manufacturing continued to be strong. Brick and cement producers were operating at capacity and tight inventories led to higher prices. Glass producers said that they were hiring because of higher demand from automobile manufacturers. Orders for lumber and wood products weakened but were stronger than a year earlier. Some contacts lowered their lumber prices to unload inventory because they were concerned that demand would slow. Sales of corrugated boxes increased, while sales of other packaging materials remained steady. Prices and input costs were higher for boxes and packaging products. Primary metal producers reported higher demand for their products, especially steel. Demand for fabricated metals was slightly below year-ago levels. Sales of electrical and electronic machinery increased. Prices were lower for semiconductors, printed circuit boards, and computers. Apparel contacts said that demand for garments increased, and they were optimistic that growth in orders would continue. Higher wages led to higher prices for some apparel products. Growth in contracts for garment-finishing slowed, however, causing lay offs in this segment of the industry. Some of this work was absorbed into other parts of the industry through vertical integration. Some garment-finishing was moved to other countries, including Mexico, and some contracts were delayed because a new "wrinkle-free" process had slowed production.
Demand for food and kindred products increased. Wood producers reported that they were passing along higher costs by raising their prices. Demand for chemicals remained strong. Inventories of ethylene and propylene were very low, and prices increased for those and some other chemicals. Despite the increases, prices remained low for many chemicals and several companies were planning restructurings and job cuts. Refiners reported that cold weather had stimulated demand for oil products and that low oil prices had boosted profit margins. Demand and margins slipped this spring, but remained healthy. Natural gas drilling continued to boost demand for oil field equipment and services. A backlog of orders is expected to keep sales of energy-related manufacturing strong through the second quarter. Except for Canada, foreign demand for energy equipment and services had been weak.
Business service firms said that demand increased and prices were generally stable. Temporary service contacts still reported the strongest activity, but advertising, accounting, communications, consulting, transportation and legal firms also reported growing demand for their services. Temporary businesses said that they are having difficulty hiring in Austin and Dallas and expect wages and prices to increase. Heavy competition led to unusually heavy discounting of transportation services. Several service firms noted that their medical insurance costs were increasing at a slower rate or declining. Hospitals reported that lower demand for inpatient care led several facilities to restructure their operations to reduce costs and employees. One hospital contact said that HMOs and other managed care contracts are critical to maintaining demand and that selection is driven increasingly more by price than quality.
Retail sales continued to grow slowly. Sales remained very competitive, and contacts who reported the strongest sales gains also reported that their prices were below year-ago levels. Some contacts with national companies reported that sales at their stores in Texas were not as strong as at stores in other parts of the country. Auto sales were strong in March and contacts were optimistic that sales growth would continue.
Construction and real estate activity increased across most of the District. New home construction remained very strong and prices were higher because of higher costs particularly for sheet rock, brick, concrete, and developed land. Fear of higher interest rates was credited with causing a surge in existing home sales in Dallas and Houston. Apartment markets continued to be tight with some new construction in Dallas and Austin. Occupancies are high and rents are rising, particularly in Austin. Commercial markets strengthened, especially retail and industrial. Office markets tightened in Austin, El Paso and San Antonio.
Strength in natural gas prices kept energy activity stronger than expected despite weakness in oil prices. Oil prices bounced between $14 and $17 per barrel in March and April. Prices were pushed up by signs of stronger economic growth and reduced shipments out of the North Sea. Natural gas spot prices dropped to $2.05 per Mcf as winter weather moderated. Still, the number of rigs searching for natural gas did not experience a normal seasonal decline and oil drilling dropped only slightly. Improved technology spurred drilling in the Gulf of Mexico - "the hottest offshore market in the world." Rigs, supply boats and other offshore equipment were being brought into the Gulf from all over the world. Over 70 percent of Gulf drilling is for natural gas.
Bankers reported moderate loan demand. Lending was particularly strong in Austin and along the Mexican border. Real estate lending remained strong but contacts noted growth in consumer lending and said that they were being increasingly aggressive in obtaining business loans.
Agricultural conditions improved and crop planting was ahead of the 1989-93 average. Crops and livestock were generally in fair to good condition, and supplemental feeding of livestock had decreased. Still, most areas continued to be in need of a good soaking rain. In March the Texas Index of Prices Received for All Farm Products was 1.3 percent higher than a year earlier. Livestock and Livestock Product Prices were 5.2 percent below last year's level, while the Crop Prices rose 17.0 percent from a year ago.