September 15, 1976
Increases in manufacturing output account for the bulk of economic strength in the Eleventh District, although much excess capacity is still evident. Total employment in the District continues to be soft, and total construction activity remains weak. Department store sales are up moderately from a year earlier, and automobile sales exhibit continued strength in the full-size and intermediate-model ranges.
Department store sales in the Eleventh District continue to grow sluggishly and are falling short of many retailers' expectations. The modest growth in sales is shared by both hard and soft goods. Retail inventories are being held in line with current volume of sales. Nevertheless, if real sales gains do not materialize, an involuntary inventory buildup may occur before yearend, according to several retailers.
Automobile sales are good as full-size and intermediate-size cars lead the sales advance. Truck and van sales are also doing quite well, Car sales are being limited by two factors. First, overwhelming demand for full- and intermediate-size cars has resulted in a shortage of the more popular models. Second, there has been some softening in overall car demand as consumers wait to assess the 1977 models. Small car sales continue weak, and inventories have risen to undesirable levels. Most automobile dealers surveyed do not feel the announced price increases will adversely affect sales. Financing is readily available, and a movement toward extended term (42 and 48 months) automobile financing is gaining momentum.
Primary metal production has begun to accelerate. The aluminum industry is operating at approximately 77 percent of capacity, but output is up because of the recent reactivation of idle capacity at two major plants. Inventories are at low levels, and production bottlenecks are not anticipated. The cost and availability of energy will continue to be a potential constraint upon production levels.
Most steel plants are operating at between 75 and 80 percent of capacity. Inventories here, too, are at reasonable levels, and no immediate shortages are expected. Prices remain relatively low as a result of continued weak demand for construction steel products. Steel producers, however, are anticipating stronger sales in the fourth quarter.
Petroleum refining production in Texas has increased to nearly 90 percent of capacity. Inventories are currently in line with the volume of sales, but a buildup by the middle of the fourth quarter is predicted. The prices of primary inputs have increased over the past year, and the increases have been passed on to customers with little impact on demand.
Apparel production in Texas has increased following a summer lull, and the industry is attempting to gradually reduce current excess capacity. Manufacturers in Dallas and Houston report good sales. Both input and finished goods prices are up. El Paso manufacturers, however, indicate sales are sluggish and are cutting prices to move out older inventories, The industry is anticipating a steady rise in sales during the fourth quarter.
Demand for oil field equipment is being dampened by the continuing uncertainty resulting from the Federal ruling to raise the price ceilings for natural gas. Output has increased somewhat, and inventories are generally in line with sales. Production is running at approximately 75 percent of capacity, but price increases for many products are being planned.
Chemical production is above last year's level but has failed to exhibit real strength in recent months. Capacity utilization is estimated at 85 percent. Inventories are being kept tightly in line with anticipated sales to prevent involuntary buildups. Demand is expected to strengthen in the next few months.
Output by the paper industry has weakened with the end of a 6-month strike in the Canadian paper industry. Production, however, is still above last year's levels, and demand is expected to grow at an average rate by historical standards. Finished goods prices have remained relatively stable, and inventories are well within manageable levels.
The devaluation of the Mexican peso had an immediate effect upon the border economy. Retail sales to Mexican Nationals have dropped substantially. In El Paso, total sales are off a third, and many lay-away purchases by Mexicans have been canceled. Moreover, many Mexicans who have made purchases on time are either requesting extensions of their contracts in order to cut their monthly dollar payments or are having their purchase repossessed. The largest beneficiaries of the devaluation are the twin plant industries along the border whose total wage bills have been cut sharply. This windfall savings to American businesses is expected to decline, however, as Mexican labor unions are currently pressuring for increases in their country's minimum wage.