Beige Book Report: Dallas
September 14, 1994
Economic activity continued to expand in late July and August. Growing strength in the service sector compensated for a slight deceleration in manufacturing orders. Despite slowing, manufacturing output was still strong. Construction and real estate activity remained robust, but new home sales and buyer traffic were less than in the second quarter. Retail sales were up, but competition remained stiff. Energy activity was slower than expected and below last year's level. Bankers said that loan demand was growing but not as fast as they would like. Agricultural producers expect overall production to be higher than last year. although there has been some damage to the cotton crop.
Manufacturing orders decelerated slightly but remained strong, particularly for paper, electronics, chemicals and refining. Slower homebuilding caused a decline in orders for construction-related products, such as lumber, metals, brick and cement. Despite the slowing, however, contacts in these industries said that sales were still relatively strong. Lumber prices were unchanged, although one contact said that higher inventories would probably lead to price declines. Demand for corrugated boxes was up sharply, pushing up selling prices and causing a shortage of liner board. Demand for other paper products also was strong, and contacts expect rising input costs will force them to raise prices soon. Demand remained very strong for electronics and telecommunications equipment. Inventories were low for some of these products, but selling prices continued to fall. Automobile and computer manufacturers created heavy demand for semiconductors and integrated circuits. Producers are increasing capacity of these products although contacts said that capacity was not increasing fast enough, and input prices would probably stop falling in the next few weeks. Apparel manufacturers said that sales had decelerated recently. Demand for food and kindred products continued to be above last year's level, and several food producers said that they had been hiring. Less than expected drilling activity kept oil field equipment manufacturing weak. In contrast, District refineries were operating near capacity. Contacts said that refining margins were very good but had weakened in recent weeks with falling gasoline prices. Demand for chemicals, particularly ethylene and propylene, was outstripping available capacity. Heavy contract commitments limited deliveries of these commodity chemicals to spot markets, and their prices were rising rapidly.
Demand for business services accelerated and many firms were hiring. Temporary service and trucking firms reported the strongest activity. Temporary firms reported slightly higher fees, but most contacts said that competition was keeping prices unchanged. Some contacts reported difficulty hiring workers but wages were not increasing.
Retail sales were up overall although sales along the Mexican border were still slower than expected. Continued entry of high volume discount retailers was keeping competition stiff, and several contacts said that Texas store-for-store sales here weaker than the nation. Automobile sales decelerated but year-to-date sales were above a year ago. Dealers said that tight inventory of some models may have affected sales.
Construction and real estate activity remained strong but new home sales and buyer traffic were down from the second quarter. Most homebuilders revised their outlook for the year downward, even though new and existing home inventories remained tight. New home prices were unchanged but builders were offering more discounts, such as free pools. High occupancy rates and rising rents continued to spur apartment construction. Commercial construction also was increasing, mostly for retail space. Rents for suburban office space were higher but rents continued to be weak in most downtown areas. Labor shortages were reported in some construction trades.
Energy activity was slower than expected and below last year's level. District drilling did not increase seasonally, and foreign activity remained weak. Weak demand for gasoline, and a further understanding of the political situation in Nigeria, pushed down oil prices from $20 to $17.50 per barrel. The decline in oil prices was expected, but contacts had not expected a decline in natural gas prices. Weak demand and heavier than expected Canadian imports pushed down natural gas prices to near $1.60 per thousand cubic feet. Contacts had mixed views about the near-term outlook for the energy industry.
Bankers reported that loan demand was growing but not as fast as they would like. Competition for loans remained intense. Contacts said that banks were cutting fees and offering special services to attract borrowers.
Agricultural producers expect production of corn, sorghum, rice, peanuts and soybeans to be higher than last year. Cotton production is estimated to be about the same as last year, but there have been heavy crop losses around Lubbock. Livestock remained in fair to good condition across the District. July commodity prices were higher, pushing the Texas All Crops Price Index up 4.6 percent from a year ago. Prices for beef cattle, calves, and hogs continued to decrease, however, causing the Livestock and Livestock Products Price Index to fall 12.4 percent below the previous year.