June 14, 1972
Recent economic indicators reflect growing strength in district economy. The Texas industrial production index rose in April for the fourth consecutive month. Construction contracts in the district reached a record level, and the unemployment rate declined slightly. A survey of head office and branch directors revealed a clear majority expect economic activity in their community and industries to increase moderately over the rest of 1972. However, directors believe the improving economic conditions will be accompanied by rates of price increase about equal to or somewhat faster than recent rates. Despite the expectation of improved economic conditions, directors from district industries anticipate levels of employment, plant and equipment expenditures and inventory investment at their firms to remain about unchanged during the remainder of 1972. Banking directors now expect a moderate increase in market interest rates.
Almost three-fourths of the directors feel economic activity in their area was somewhat stronger in May than during the first quarter, and two-thirds of the directors foresee a moderate further gain in activity during the next six months. Directors from commercial banks were more optimistic about economic conditions during the rest of 1972 than were directors from business firms in the district. The outlook for prices by both businessmen and bankers was not optimistic. Eighty percent of the directors expect prices to be rising at the end of 1972 at about the same rate or somewhat faster than in recent months. Only 20 percent of the directors felt prices would be rising at a somewhat slower rate by the end of 1972.
Directors associated with nonbanking business were surveyed with respect to the outlook for their firms and industries. A majority anticipated employment, plant and equipment expenditures and inventories for their firms will remain about the same between now and the end of the year. None of the respondents was anticipating higher employment by the end of the year, and one was anticipating substantially lower employment. Only two directors rated summer employment opportunities for students at their firms as good or very good, and this was offset by two who rated summer employment opportunities as bad or very bad. The majority indicated summer employment opportunities at their firms were marginal. While the majority of business directors anticipated inventories at the end of the year would be about the same as the present level, two directors anticipated moderately higher inventories. Most of the directors felt actions of the Price Commission would have a moderate or marginal effect on slowing price increases in their industries. However, only three directors felt the Pay Board would have any effect in slowing increases in wage rates in their industries during the remainder of the year. Two-thirds of the business directors did not expect their company profits to be affected in 1972 by Phase II controls, while the other one-third expected a slight negative effect on profits.
Commercial banking directors were asked about recent loan demand at their banks and their expectations about interest rates. The majority felt the demand for business loans, consumer loans and mortgage loans was much higher at their banks in May than in the first quarter of 1972. While demand for agricultural loans was essentially unchanged, loan demand was particularly strong in the construction industries. Moreover, the overwhelming majority of bank directors stated their banks' willingness to make loans had remained essentially unchanged from the first quarter. Funds at their banks were judged to be moderately available or very available to meet loan demand at the present time. Not a single banking director expects a moderate increase in short-term rates during the next six months: half feel long-term rates will also rise moderately, but the other half feel long-term rates will remain at about present levels. The banking directors believe the prime lending rate will be between 5 1/2 and 6 percent by the end of the year, with 5 3/4 percent the most frequently mentioned rate.
The seasonally adjusted Texas industrial production index rose in April for the fourth consecutive month. In manufacturing, all industry groups reported monthly as well as year-to-year gains. Petroleum refining, a significant industry in the index, increased 14.1 percent over last April. Oil allowables in the district's four producing states were left unchanged for June. Seasonally adjusted total employment in the five southwestern states receded slightly in April, but nonfarm payroll employment remained at the March level and the unemployment rate edged downward. All industry groups showed year-to-year gains in payroll employment. Construction activity in the five southwestern states continued its fast pace. The total value of contracts awarded rose to a record level in April. Sales of department stores in the district continued to show monthly and year-to-year gains, but automobile registrations dropped significantly in April from March levels.