June 15, 1977
Most economic barometers of business activity indicate that the economic recovery in the Eleventh District is still moving forward at a steady pace. Department store sales remain strong, and an increase in small-car purchases is adding to total unit sales. Manufacturing output and drilling activity in Texas continue to register gains, but some delivery and work schedules are beginning to stretch out. Although total employment remains essentially unchanged, some shortages of skilled labor are cropping up. There is no evidence of speculative buying in Texas in the markets for new homes or agricultural land.
Department store sales are running about 14 percent above year-earlier levels. Durable goods are selling well—especially home furnishings. Retailers also report an improvement in sales of women's apparel and accessories. Department store inventories are generally at desired levels, and retailers remain optimistic that sales will continue to grow steadily for the remainder of the year.
While the current strength in automobile sales is in the large- and intermediate-sized models dealers report a quickening in small-car sales and a definite trend back to smaller cars since President Carter's energy message. Vans and light trucks continue to sell briskly but used car sales have weakened in some major urban markets. New car inventories are lower than desirable for the more popular models, and their limited availability is holding down unit sales.
Manufacturing in Texas continues to show moderate gains, and much of the strength in output is being spurred by demand for construction materials. Production of construction steel products is up substantially, and demand for cement is unusually strong. Producers of lumber mill products think that rising lumber prices may soften later this year due to a runup in lumber inventories. Production of oil field equipment is running near full capacity, and a backlog of unfilled orders for drilling equipment is beginning to rise. Delivery times for some rig components and specialty tools are lengthening.
Increased drilling activity in Texas accounts for the strength in mining output, as oil and gas production continues to decline. Drilling contractors have a solid backlog of contracts with drilling costs running 10 percent to 25 percent higher than a year ago. Short supplies of new and used drill pipe and tool joints, coupled with longer lead times for other rig components, are forcing adjustments in many drilling operations. Older equipment, for example, is being pressed into active service. Although contractors report no serious labor shortages, the availability of experienced crews is gradually declining.
Despite little change in total employment in the District, some shortages of skilled labor are appearing in jobs requiring machinists, mechanics, building tradesmen, nurses, and secretaries. The job outlook is good for college students seeking summer employment in construction-related industries.
The housing market in Texas remains robust, but there is no evidence to suggest that speculation has taken hold. The supply of new homes generally continues to grow in line with demand. Developers in Houston indicate that some projects are being held back by delays in public utility hookups and street construction. Second mortgages in Texas are not playing a significant role in the strong housing market because a homestead statute restricts such loans to home improvements.
Agricultural land values in the District have increased only slightly in the past year. A recent survey of agribankers' opinions as to changes in average land values over the preceding 12 months indicated that dryland and irrigated cropland rose about 2.5 percent to 3.5 percent, while ranchland declined about 3 percent. Areas in the District where cotton and soybeans are dominant crops showed a higher appreciation in land values—particularly the southern High Plains and Rolling Plains of Texas, South Texas, and northern Louisiana. Low grain prices tempered increases in land values somewhat in many areas. And ranchland values were stagnated by depressed cash flows and reduced income from cattle operations. However, more than a fourth of the bankers surveyed felt land values will rise this year.
Mortgage financing continues to be covered by the conventional sources of credit—individuals, Federal land banks, and insurance companies. However, several real estate agents report some influx of out-of-state and foreign capital that has been used directly to purchase tracts of land.