Beige Book Report: Dallas
September 11, 1996
Eleventh District economic activity strengthened in August from July's moderate pace. Despite relatively strong demand and desired inventory levels for most products, there were only scattered reports of price pressures since the last survey. Manufacturing orders accelerated in August, with strong demand for construction- and energy-related products. Back-to-school retail sales were good, and sales continued to pick up along the Texas-Mexico border. An increase in commercial construction offset slower new home construction, and Eleventh District loan demand remained steady. Energy activity continued to strengthen, and heavy rains improved agricultural conditions.
Prices and Wages
There were scattered reports of price pressures. Prices were up for
oil field machinery, apparel, lumber and some paper products. In
addition, crude oil prices remained relatively high, despite
approval for Iraqi entry into the market. Real estate prices
continued to firm up as low office, warehouse, and apartment
vacancies pushed up rents. Nevertheless, prices continued to fall
for electronic products--such as memory chips, telecommunication
products, and computer components-where inventories were still too
big, according to contacts. Brick producers said prices were steady
to slightly lower after rising strongly earlier in the year. Also,
natural gas prices fell to six month lows, a result of milder
weather and rising storage levels.
There were some reports of wage pressures in the past six weeks. Contacts in the energy industry said labor shortages for workers with certain oil-related skills were pushing up wages. Several contacts in the high-tech sector noted wage pressures for skilled development engineers. Furthermore, some manufacturing respondents noted a lack of qualified, entry-level applicants, which has been a recurring observation throughout the year.
Manufacturing
Manufacturing orders accelerated in August following slow growth in
July. Several respondents in the electronics industry said unit
demand for semiconductors was flat in August after falling since
early this year. Despite the recent improvement, contacts did not
expect a sustained increase in overall chip orders until the first
half of 1997. Demand for telecommunications products held steady at
July's healthy levels, and unit computer demand picked up slightly,
although contacts in both industries said inventories were too high.
Most construction-related producers said orders remained strong and
inventories were slightly tighter than desired, especially those
supplying commercial contractors. Lumber orders continued to rise,
with much of the strength stemming from increases in commercial
construction and home remodeling. Brick producers said demand was
steady, with fewer orders from homebuilders but rising orders from
commercial and apartment builders. Demand for metal products
remained steady at good levels, with much of it related to the
construction of industrial warehouses. Paper manufacturers said
orders had improved, and demand was also up for corrugated box
producers. Apparel orders were up slightly. Strong energy activity
caused oil field equipment orders to strengthen further, and some
contacts noted that demand was outstripping available capacity.
Chemical orders remained strong, the only exception being for
products tied to synthetic fibers. Refiners noted a slight
improvement since the last survey, but overall, low product prices
and high crude oil prices continued to squeeze margins.
Retail and Auto Sales
Most retailers reported good back-to-school sales, although in
general, department stores reported better August sales than
discount stores. Some retailers said Texas sales growth was not as
strong as in the rest of the nation despite improvement along the
Texas-Mexico border. Auto sales were flat over the past six weeks,
as the 1996 models became "picked over" but the 1997 models were not
yet in stock.
Financial Services
Loan demand was mostly steady since the last survey. The exception
was residential refinancings, which continued to decline. Demand for
other residential loans was mixed, according to contacts. Demand for
consumer, business and commercial real estate loans was unchanged at
good levels.
Construction and Real Estate
Construction activity was mixed, with rising commercial building
offsetting slower new home construction. New and existing home sales
have softened from the record-setting pace of the second quarter,
but contacts remained optimistic about the rest of the year. Strong
rental demand for office space coupled with low vacancies continued
to push up rents, and several office projects are slated to break
ground by year-end, according to contacts. Warehouse and retail
construction activity picked up, while apartment construction held
steady.
Energy
Energy activity continued to rise over the past six weeks. Offshore
drilling activity in the Gulf of Mexico was reported to be strong,
and some contacts in Texas and Louisiana said a lack of skilled
workers was making it difficult to form drilling crews. Strong
domestic demand for oil products kept crude oil prices relatively
high. Despite a decline in natural gas prices, natural gas still
accounts for the majority of drilling activity, according to
contacts.
Agriculture
Heavy rains improved agricultural conditions across most of the
District, although drought remains a problem. Subsoil moisture and
pasture conditions are better, and haying activity has increased.
Still, cotton and corn production are expected to be roughly 30
percent below last year, and livestock liquidation continues, albeit
at a slower pace.