Beige Book Report: Dallas
August 3, 1994
Economic activity and optimism increased in late June and early July. Demand growth for manufactured products and business services accelerated. Retail sales increased, and construction and real estate activity continued to rise despite modest slowing in the single-family housing market. District energy activity was still moderate, and there was no indication that domestic or foreign drilling had been affected by the recent upturn in oil prices. Loan demand continued to expand, and bankers reported that the industry is very competitive. Agricultural conditions were favorable despite hot, dry weather.
Manufacturing orders and optimism rose since the last survey. Brick and glass producers reported stronger demand and higher prices than both last month and a year ago. Brick and glass contacts were operating at capacity, and expect to remain busy through the end of the year filling a backlog of orders. Cement orders for homebuilding slowed, but demand from apartment and highway builders was up. Commercial and residential construction spurred lumber sales which slowed last Spring, when contacts said customers were concerned higher interest rates would curtail home building. Continued residential construction boosted confidence and encouraged inventory rebuilding. Demand for paper products increased, and prices were higher. Expanded exports, stimulated by recent declines in the value of the dollar, pushed up demand for corrugated boxes. Demand for semiconductors remained strong, and prices held steady, but contacts expect growth to slow. Primary and fabricated metal sales have stayed high, particularly for commercial construction. Metal producers reported that higher costs pushed up selling prices. Rising orders for apparel manufacturing led to more hiring and higher wages. Apparel contacts were optimistic that sales would continue to grow. Apparel input costs were higher although several producers said that they had not raised their selling prices. Garment finishers said that demand weakened in the last few months. Some contacts expect most garment finishing to move to Mexico. Sales of food and kindred products rose. Food manufacturers expressed optimism about future sales, and several firms added employees. Domestic demand for oil field equipment and services was still strong but foreign demand was weak, except from that of Canada and Latin America. Contacts reported a shortage of skilled blue collar workers, particularly machinists. Domestic demand for refined products is nearly five percent higher than a year ago, and refineries have been running at utilization rates of 55 percent or higher. Refining margins fell because prices for oil products had not risen as much as oil. Margins also narrowed because EPA mandates to blend renewable oxygenates into gasoline caused methanol and MTBE prices to increase sharply. Refinery contacts say that EPA mandates will reduce demand for gasoline and cause a shake-out in the industry. Demand for chemicals continued to rise. Producers of ethylene and propylene reported low inventories and higher prices, but they expect prices to moderate when additional capacity comes on line this fall.
Business services contacts report slightly greater sales than during the last beige book survey period. Demand remained strong at temporary firms, particularly for technical and professional workers, such as accountants, engineers and programmers. Legal firms said that transactions activity (mergers, acquisitions and public offerings) was particularly high although litigation work was softening. Legal contacts said that businesses are using alternative dispute resolution mechanisms to reduce the expenses of litigation. Accounting activity increased, particularly international business dealing with trade between Mexico and the United States. Demand for transportation services continued to rise, but competition kept prices stable.
District retail sales increased, but sales along the Mexican border were still sluggish. Home products continued to have the strongest growth, although apparel sales improved slightly. Selling prices were unchanged, and contacts do not expect price increases. Auto sales increased in May and June. Dealers reported that low inventory had begun to affect sales, and prices were rising.
Construction and real estate activity continued to rise despite modest slowing in the single-family housing market. Homebuilding remained stronger than a year ago, but contacts said sales of new and existing homes had slowed. Inventories of new homes were still very low, but new and existing home prices stabilized after large increases earlier in the year. Apartment occupancy remained high boosting multifamily construction. Leasing and construction of retail space was reported to be strong. Office construction was almost nonexistent although demand for existing office space picked up.
District energy activity remained moderate, and there was no indication that higher oil prices had affected domestic or foreign drilling. Dooming demand for oil products combined with supply disruptions in Yemen, Brazil and Nigeria to push oil prices back over $20 per barrel in June. Drilling increased seasonally and is expected to rise through the end of the year, but remains slow. Most drilling was still focused on natural gas, and activity in the Gulf of Mexico remained high. The price of the NYMEX near-month contract for natural gas has been relatively high, although lower than last year, close to $2 per mcf all summer. The August contract slipped under $2 recently. Contacts are concerned that high levels of Canadian imports and growing domestic production, will put downward pressure on natural gas prices. Storage fields depleted over the winter refilled faster and more easily than expected.
Bankers reported that loan demand was increasing, but they said they would like to extend more loans. Some also said that intense competition was limiting their ability to lend because it encourages lower rates and looser credit standards than they desire. Large banks are reported to be particularly active in lending. Respondents noted an increase in mergers of smaller banks, and suspected that cost reduction was one motivation.
Agricultural conditions were favorable despite hot, dry weather. Crop progress was ahead of last year, and crop conditions were mostly good. Livestock remained in fair to good condition as supplemental feeding increased. Heat and insufficient moisture lowered yield estimates and stressed range conditions in some areas. Prices for beef cattle, calves and hogs continued to fall causing the June Livestock and Livestock Products Index to drop 13 percent below a year ago. All June commodity prices were higher than a year ago, except potatoes, pushing the All Crops Price Index up 14.9 percent.