March 9, 1977
Economic activity in the Eleventh District continues to improve, although weakness in some industries still hampers overall growth. The expansion in total employment that began late last year continues and has reduced the unemployment rate for the District states to 5.7 percent. Department store sales remain strong even though some recent softness has been noticed, and automobile and truck sales continue to rise. Increased demand for real estate and consumer loans leads total lending activity, but business loan demand has picked up slightly. Lower prices for grain and cattle and rising costs of production—especially higher irrigation costs—continue to depress farm incomes. The growth in industrial production in Texas is being held down by durable goods manufacturing. Nondurable goods production, led by the chemical and petroleum refining industries, continues to grow, while activity in the oil and gas industry remains at a high level.
Department store sales in the District continue to exhibit strength. Sales picked up significantly in December and January, even though the gains over a year ago have narrowed slightly in recent weeks. Merchants are generally optimistic concerning the immediate outlook for sales. Retailers report that bad weather has had only a very limited effect upon sales. Sales of furniture and appliances in most major cities are strong, but some recent weakness has been noted in El Paso. Retail inventories are generally at desired levels, although some firms in Dallas report them a bit on the high side. An El Paso retailer indicates that his inventories are in good shape after several months of adjustment to reduced sales caused by the peso devaluation.
Automobile sales are rising with much of the growth in the full- to intermediate-size models. Sales of trucks, vans, and recreational vehicles also remain quite strong. Dealers continue to report shortages of large cars and vans. Demand for small cars continues sluggish, although inventories of these models are gradually being brought into line. While some dealers indicate small car sales are at a virtual standstill, an El Paso dealer reports some signs of a slight improvement. Demand for optional equipment on all models continues strong. Most dealers indicate that any loss of sales due to bad weather last January was quickly recovered with the return to more seasonal temperatures.
Chemical production in Texas has started to climb moderately. Demand for plastics has strengthened, while fiber demand remains weak. Fertilizer production in the state has not been appreciably affected by the small number of natural gas curtailments at ammonia plants. Inventories are higher than desirable but are being reduced as transportation bottlenecks to markets east of the Mississippi are cleared. The outlook for capital spending in the industry is mixed. Some respondents expect substantial increases in capital spending, but an industry consultant expects meager increases in capital spending this year due to industry uncertainty concerning a national energy policy.
Output in petroleum refining has also begun to climb, and production has shifted from primarily heating fuel to gasoline. Ample supplies of gasoline are anticipated for the summer. However, gasoline prices are expected to rise slowly this year due to the growing share of higher-priced oil imports.
Fabricated metals production has started to advance. Current demand for metal cans is being spurred by previously announced price increases which become effective this month. A San Antonio metal fabricator reports that his current level of business has been steady, but he is optimistic about the near future. New orders for fabricated structural metal products have slowed in Dallas because of sluggish nonresidential construction demand. Some future supply shortages may develop for machine parts and steel castings. Production of primary metals has failed to show real strength in recent months. Demand for steel is beginning to improve as total construction activity continues to pick up momentum. Demand for aluminum has also strengthened, but production at individual plants is directly related to the cost of electricity. A Texas refinery that uses power generated at a lignite-fired plant is running at full capacity, while a smelter that relies on a gas-fired generating plant has remained idle for 17 months. A refinery line in Louisiana was recently opened up because reductions in hydroelectric power production in the Northwest (caused by the drought) are forcing a reduction in production in that area of the country. Production of lead has fallen short of demand, and prices are expected to rise until balance is restored. Copper producers are faced with an oversupply of inventories which will continue to hold down copper prices. Capital spending plans in the primary metals industry this year are largely for pollution control devices. Shortages of final products are not expected because of the current high level of unused capacity in the industry.
Transportation equipment production in Texas continues to be hampered by the slowdown in U.S. Government contract commitments for aircraft and helicopters. Despite the falloff in domestic sales, foreign orders continue to provide moderate to strong demand. The Dallas-Fort Worth based Vought Corporation is cautiously optimistic that Congress will restore budget funds cut recently by President Carter for the ATE aircraft and Lance missile. If Congress fails to restore funds, the company expects as many as 7,000 employees could be laid off by early 1979. Nearly 90 percent of those who may be laid off are located in the Dallas-Fort Worth SMSA.