May 10, 1977
The economic expansion in the Eleventh District continues to build and broaden into virtually every industry. According to this month's survey, the administration's proposed energy program, if enacted, would have little immediate effect on capital spending. All areas of construction activity continue to exhibit substantial strength. Homebuilding is up sharply from the strong performance a year ago, and demand for mobile homes continues to pick up. Nonresidential building is beginning to boom with a big increase in construction of manufacturing plants. Steady savings inflows into Texas savings and loan associations continue to provide ample supplies of mortgage money in the face of strong demand. Increased agricultural crop receipts are bolstering cash flow and farm incomes.
Businessmen report the effects of the administration's proposed energy program on capital spending are not clear at the present time. Uncertainties stemming from the energy proposals are evident, but so far there is no indication that they have led to any significant erosion of business confidence and delays in capital spending plans. One steel producer canceled construction of a $100 million furnace after the administration's energy announcement, but a major electric utility notes that the energy proposals would not alter their current capital spending plans through 1978. An El Paso sheet metal firm, however, is planning to build a large plant to accommodate an anticipated increase in its solar heating business.
New housing starts in Texas are running 61 percent higher than a year ago, and brick, insulation, carpeting, and skilled labor are in short supply in some areas. A Houston homebuilder reports especially strong housing demand at the lower end of the price spectrum and that additional emphasis is being placed on building low-cost housing. However, there could be a softening in the lower-price housing market as the recovery in apartment construction gains momentum. Increased construction costs continue to push housing prices upward, and most homebuilders expect new single-family home prices to climb from 10 percent to 15 percent this year. As a result, the low-income buyer might find it cheaper to rent than to buy.
Most mobile home dealers report excellent sales, and an El Paso dealer indicates that March was his best sales month ever. Inventories are generally at desired levels. Mobile home manufacturers are paying increased attention to a growing overseas market. One manufacturer recently shipped about 120 double-wide modular units to Algeria as part of a larger order.
Construction of office buildings in Texas appears to be picking up slowly. Office leasing has strengthened in most large cities and has stimulated new office construction—especially in Houston where first-class downtown space is 98 percent occupied.
Construction of manufacturing plants in the District is beginning to accelerate on a broad front. Most of the biggest dollar outlays are being made in the petrochemical industry along the Gulf Coast where numerous new plants and expansions are under construction. The largest single project is a new $600 million ethylene plant that has just been started near Corpus Christi. In addition, building plans for new and expanded plants in the electronics, machinery, paper, and steel industries are up sharply. Lone Star Steel has announced a $100 million expansion, and a new minimill is slated to be built near Houston. Industrial commissions in Texas report that the number of firms making inquiries about the possibility of locating in the state where energy supplies are believed to be readily available are running at record levels.
Nonbuilding construction continues to improve gradually, but a turnaround in highway construction in Texas will be stronger than previously anticipated. The state government has approved $264 million for highway construction and repairs in each of the next two fiscal years. Those sums are funds that were added to current budget expenditures for highway construction which have been running at about $350 million per year.
Savings inflows into Texas savings and loan associations continue to grow, and mortgage money remains readily available. A Houston S&L reports no decline in its savings inflows from last year's peak level. However, a San Antonio S&L indicates that inflows are not as strong as last year. Commercial banks in Dallas are experiencing increased mortgage demands. One bank reports more demand than it can handle, while another indicates that the number of mortgage loan applications received last month was the highest in 20 years. Conventional mortgage rates have firmed a bit to 8 3/4 percent.
Cash flows and farm incomes in the District are being boosted by increased receipts from crop sales. Sharply higher receipts from cotton and soybeans have raised total crop marketings about a fifth higher than a year earlier. However, because of weak cattle prices, livestock sales are lagging. With crop sales strong, cash receipts for the District states in the first two months of this year advanced 11 percent from the comparative period a year earlier, substantially exceeding the 3-percent gain for the nation.
Deposits at rural banks in Texas have risen slightly because of the increased cash flow from cotton and soybean marketings. Monthly data from a selected group of Texas banks heavily engaged in agricultural lending indicate deposits are up 10 percent from a year ago. Total loans at the same banks, however, have climbed nearly a fifth. Loan- to-deposit ratios at these banks have risen somewhat but average 53 percent when Fed funds sold are not classified as loans.