August 10, 1973
The economy of the Eleventh District continues to expand, but some major economic indicators are beginning to show signs of weakness. Industrial production in Texas grew substantially in June, and weekly department store sales in the District advanced during July. However, total employment and new automobile registrations for the District declined during June, and the value of construction contracts fell. Moreover, the unemployment rate increased for the fourth consecutive month. A survey of our directors who are bankers revealed that they expect business conditions to be unchanged or slightly weaker by the end of the year.
Most of the responding directors indicated that business conditions in their communities are about the same or slightly stronger than three months ago, but a majority feel that conditions will be moderately weaker by the end of the year. Almost all of the respondents revised upward their expectations of price increases as a result of the introduction of Phase IV. They now feel that the growth rate in consumer prices will accelerate in the three months ending in September but will slow down later in the year.
A majority of the directors felt that both long- and short-term market rates of interest will continue to move upward over the next four to five months. Most did not expect that by the year-end the prime rate charged to large business firms would rise much higher than the early August level. Furthermore, they anticipated this rate would be below its present level by the end of March next year. Very little change is anticipated in the prime rate charged on small business loans between now and the year-end.
Most of the respondents have not altered their willingness to make consumer and agricultural loans in comparison to the preceding three months. However, a majority expressed less willingness to make large business and mortgage 1oans, indicating a concern over the availability of funds at their bank. Over the next six months, almost all of our bank directors expect disintermediation in savings and time deposits. At the same time, a majority thought that the July increase in Regulation Q interest rate ceilings would help prevent a substantial loss of funds.
The seasonally adjusted Texas industrial production index advanced sharply in June, the third consecutive monthly gain. Manufacturing and mining were responsible for the entire increase, while utility activity remained unchanged. The continuing high level of Texas oil and gas production is drawing down reserves. At this time, new discoveries are replacing only about 10 percent of production, but some production may be curtailed by the proposed Phase IV rollback in crude prices.
The value of construction contracts in the District states decreased in June. Residential building contracts were at their lowest level since December 1972, and residential building awards fell slightly. But nonbuilding awards reached the highest level in a year. Seasonally adjusted total employment slipped slightly in the district states during June. At the same time, the unemployment rate rose to 4 percent.
July department store sales in the District continued to be above the year-ago figures. For the first half of this year, new-car registrations in the four largest Texas cities exceeded those for the corresponding period last year by almost 20 percent. However, in June, the number of new registrations dropped below that for the preceding month.
Prospective crop yields in the Southwest appear to be above average, as weather conditions have been favorable in the growing season. The harvest of grain sorghum in south Texas is making excellent progress, and farmers are receiving prices as much as double those obtained last year.
The livestock industry reflects the uncertainty that has resulted from economic controls and the cost price freeze. Ranchers are keeping cattle on pasture rather than placing them on feed, and feed-lot operators are holding cattle to heavier weights. As a result, fewer animals are reaching market. Broiler chicken placements in July were nearly 15 percent less than in the same period last year, and the number of hogs and pigs in Texas have dropped sharply from a year ago.