December 12, 1973
Refining operations in the District slowed in November in response to the Arab oil embargo. For the month ending November 23, capacity utilization declined from near 100 percent to 94 percent. Part of the oil refined in November was of Arab origin shipped before the embargo was imposed, and as this source is fast drying up, refining operations are expected to be even more severely curtailed.
Information obtained from a drilling contractors' association in Texas indicates that oil drilling in the District has responded strongly to the incentive of higher prices. Drilling is currently at the maximum level allowed by the availability of drilling rigs, crews, pipe, and other materials. Last month's concern that provisions of the fuel allocation program would prevent rigs from obtaining the needed diesel fuel for operation has abated due to changes in Administration policy. Nevertheless, production from Texas fields by late 1974 is expected to decline from rates reached in the third quarter of this year by as much as 200,000 barrels per day. This anticipated decline reflects the fact that most oil fields in Texas are past their peak in production capacity.
Seasonally adjusted registrations of new passenger automobiles in the four largest metropolitan counties of Texas rose 12 percent in October. Several dealers in the District attribute the increase largely to the filling of fleet orders placed earlier in the year. Most likely the increase does not signal a reversal in the decline of new car sales which began last March. Dealers feel that sales are down due to tight credit conditions and a changing preference for smaller cars which are in limited supply. The controller of a large assembly plant in the Dallas area, which produces intermediate and compact cars, expects a good winter for car sales. However, he is concerned that labor contract awards will require higher car prices and that fuel shortages may force a cutback in production.
The seasonally-adjusted value of total construction contracts in the five southwestern states increased by 22 percent in October, reflecting a more than doubling in the value of nonbuilding contracts. Residential contracts have declined since May but experienced a 7 percent increase in October. However, this probably does not represent a turning point in the southwest housing decline. The marketing research director of the largest residential builder in Dallas revealed that sales for most builders are now down 50 to 60 percent from last year's level. He feels that high interest rates and spiraling home prices have forced many people out of the market. But he is optimistic about a recovery in 1974 if interest rates decline.
At the same time, representatives of two large savings and loan associations in Dallas are less optimistic with regard to increased residential construction in 1974 and they anticipate further declines in home building through the remainder of 1973. Deposits in their institutions have begun to grow recently—after falling since the middle of the year—and more mortgage credit is expected to be available. However, they anticipate that mortgage interest rates will be "sticky" in the downward direction and that increases in home prices will further hamper home sales.
District farmers made excellent progress during November, and for the first time this year, they are either attaining or surpassing last year's schedule for harvesting or planting all crops. However, there are problems in beef production stemming from price controls imposed earlier. During the period of controls, the amount of beef marketed declined, and fewer additional cattle were placed on feed. Therefore, supplies might be reduced somewhat in the first half of 1974, although there is currently an abundant supply of beef ready for slaughter.