January 10, 1973
Most recent indicators of economic activity in the Eleventh District continue to show growing strength. Both the Texas industrial production index and total employment in the five-state area reached record levels in November. New car registrations were also up, and department store sales continued strong in December. Construction activity, however, was lower in November. A recent survey of the directors of this bank representing the nonbanking sector revealed that most of them expect 1973 to be another good year but with some reservations. The directors generally agreed that 1973 would be a good year for sales and plant and equipment investment, but they expected increasing upward pressures on prices and wages.
Our responding directors were generally optimistic about the prospects of their own firms in 1973. Sales, for example, were expected to increase an average of about 10 percent, and most firms expected to increase their investment in plant and equipment—in one case, possibly by as much as 100 percent.
The respondents were not so optimistic about prices. Inflation was expected to accelerate moderately despite the consensus that wage and price controls would remain through 1973. Judging from our responses, the pace of inflation might rise even more if controls were to be lifted. Two of our directors, for example, indicated that their firms would raise prices if the controls were lifted. The majority, however, indicated that competition would prevent such increases. Wage increases, too, were expected to accelerate slightly next year. And like prices, some directors saw wages rising more rapidly for their firms if the controls were eliminated.
Looking at their current positions, two thirds of our respondents expressed satisfaction with their profit margins. Inventory levels were also judged to be about normal. But interest rates had risen 1/4 percent to 1/2 percent for some of them over the last month.
The seasonally adjusted Texas industrial production index rose in November to a record level. All major industry sectors shared in the rise. Output of utilities, paced by a substantial rise in the distribution of electricity, rebounded strongly in November after declining sharply in October. Within manufacturing, production of durable goods recorded the larger gain as all durable goods industries posted gains over October. Mining also increased slightly, as small increases in the production of crude oil and natural gas liquids more than offset declines in output of natural gas and metal, stone, and earth minerals. The regulatory commissions of District states are continuing to permit maximum production of crude oil except for a few fields in Texas that are partially restricted for conservation reasons. Several manufacturing plants in Texas, relying on natural gas for fuel, suffered supply cutbacks in early December and were forced to suspend operations briefly. However, the weather improvement toward the end of the month helped to ease the situation.
The weather has also forced suspension of cotton harvesting on the high plains. Harvesting had already been delayed by early-December storms and had just begun to pick up around Christmas week when another severe storm stopped all field activities. It is now feared that additional losses of both quantity and quality will occur in this area. Despite this, cash receipts from farm marketings through October continued sharply ahead of last year, and farm income in 1972 for the District should be a record, given the continuing higher prices for cattle and grains. As of December 1, Texas and Arizona had nearly 2.9 million head of cattle to feed, unchanged from the month earlier but 27 percent above December 1971.
Seasonally adjusted total employment in the five southwestern states rose in November for the fifth consecutive month. This increase, coupled with a decline in the labor force, caused the employment rate to drop from 4.4 percent to 4.0 percent. Gains in manufacturing employment were responsible for most of the rise in employment, as substantial increases were reported in both the durable and nondurable goods sectors.
Recent indicators of consumer spending also continued to advance. Department store sales rose again in December and were especially strong in Dallas and Houston. Automobile registrations were also higher in November, particularly in Dallas.
Construction activity, as measured by the value of contracts awarded, decreased in November for the third consecutive month. Both residential and nonresidential construction fell in November, but nonbuilding construction did increase slightly. The cumulative value of contracts for the District states through November, nevertheless, was still almost 25 percent ahead of the corresponding period last year.