Beige Book Report: Dallas
November 1, 1995
The Eleventh District economy continued to expand at a moderate pace in September and early October. Demand for most manufactured products was unchanged or slower, and retail sales remained weak. Financial institutions reported steady loan demand, and energy and agricultural conditions were unchanged since the last Beige Book. On a more positive note, demand for most types of real estate continued to edge up, cargo shipments were up slightly and demand for business services continued to rise strongly.
Overall, there were few reports of price or wage pressures. Scattered wage pressures were reported by service firms who continued to have problems finding skilled workers. Several manufacturers also reported a lack of skilled laborers but had not raised wages. Natural gas prices rose and were slightly higher than last year, but oil prices held steady. Transportation fees continued to fall because of rising competition. Retailers reported that discounting was heavier than last year. Agricultural prices were up slightly.
Overall, orders were soft for Eleventh District manufacturers. The notable exception was the electronics industry where contacts reported rising demand for semiconductors and computer products. Orders for most construction-related products held steady, but several contacts expected sales to improve as a result of rising housing starts and robust commercial construction activity. Demand for corrugated boxes was unchanged since the last Beige Book but contacts said they were trying to work down a recent inventory buildup. Although the outlook for the paper industry is not as strong as it was earlier in the year, respondents said they expect demand to pick up in 1996. Orders for food products weakened slightly, but contacts were still pleased with the levels of demand. Apparel orders fell because of weak retail sales, and several apparel contacts said they were laying off employees or initiating hiring freezes. Demand for chemicals continued to weaken and respondents said inventories were beginning to build up. Although prices were weaker than earlier this year, Gulf Coast firms remained profitable and were proceeding with expansion plans. Refiners reported seasonal weakness, with demand for oil products slack as the summer driving season ended. Despite a slight decline in domestic drilling activity, international activity and strong drilling in the Gulf of Mexico kept demand steady for oil services and machinery.
Demand for business services continued to increase at a healthy pace. Litigation remained strong, but business transactions services-such as initial public offerings, real estate and banking- were even stronger. Although contacts said they were still very cost-conscious, hiring was up slightly. Overall, fees remained competitive, but some firms were able to raise prices as a result of increasing demand. Respondents were bullish about the next six months, with only one cloud on the horizon: finding enough resources to handle all the work.
Transportation services firms reported mixed changes in demand: passenger airlines reported a slight decline, while cargo transportation demand was flat to slightly higher. Contacts in the cargo industry said that demand had increased from firms that produce paper, building products, electronics and food products. Trucking firms reported heightened efforts to recruit and retain qualified drivers. Heavy competition resulted in discounting at trucking firms, but prices for passenger transportation increased slightly. Cautious optimism characterized the outlook for both cargo and air passenger transportation industries.
According to respondents, district retail sales remained weak in September, growing more slowly than the national average. Several contacts said that inventories were rising but had not reached alarming levels. Contacts said that sales along the Texas/Mexico border continued to decline, and most expected Christmas sales to be below last year's levels. Automobile sales were down slightly from the last Beige Book, but were above year-ago levels.
Eleventh District financial Institutions reported steady loan demand and competition for loans remained strong. Respondents were cautiously optimistic about the outlook for the next six to twelve months. Contacts said talks of mergers and acquisitions in the Eleventh District have heightened in recent months.
Construction and real estate activity improved slightly. Although apartment construction declined because of overbuilding concerns, rental demand remained strong. Single-family construction picked up as buyers took advantage of lower mortgage rates. Demand for industrial space was very strong and several contacts were considering speculative projects. Demand for suburban office space remained strong and rents continued to edge upward.
Conditions in energy markets have not changed much in the past two months. A series of hurricanes that threatened production and refining along the Gulf Coast provided the only excitement. The price of West Texas Intermediate Crude Oil remained firmly fixed between $17 and $18 per barrel, except for a brief period of $18 prices when hurricane Marilyn visited the Caribbean in late September. Natural gas prices have been volatile, as hot weather boosted demand and hurricanes curtailed production. At $1.70-$1.75 per thousand cubic feet, October gas prices were reported to be above last years levels. While overall domestic drilling activity was down slightly, activity in the Gulf of Mexico has been unchanged since spring 1994 and international activity is ahead of last year.
Agricultural conditions were unchanged. Although September rains slowed planting and harvesting progress (for some crops, most contacts said they expected corn, peanut, citrus and pecan production to be up this year. Parts of South Texas continued to suffer from very dry conditions, and the cotton crop was reduced by severe insect problems. A price index of Texas farm products increased slightly in August and again in September, with higher crop prices offsetting lower cattle and calf prices.