October 11, 1977
Discussions with Directors, businessmen, and financial executives indicate the economy of the Eleventh District continues to expand. Department store sales have quickened recently. Skilled labor is in tight supply in the major District centers, and labor markets are tight generally in Houston, Austin, and oil and gas drilling areas. With the demand for workers already high, the increase in the minimum wage will impact primarily in retailing and food service activities. Deliveries of oil field equipment can't keep up with the boom in drilling activity. The increase in planned capital spending by petroleum processors appears to be leveling off, and construction of apartment buildings is increasing sharply. The rapid pace of home buying is providing District S&Ls with all the business they care to handle, while agribankers plan an 8-percent cutback in number of farm borrowers serviced. The impact of the longshoremen's strike at Texas ports is minor.
September department store sales in the District rose faster than the fairly strong rate of sales established in the first eight months of the year. Retailers report inventories are balanced and expect sales to remain strong for the rest of the year. Sales gains are fairly broad-based although some weakness is evident in shoes and men's clothing. Retailers in El Paso report that sales to Mexican nationals have returned to near the rate that prevailed prior to the devaluation of the peso.
Total employment in the District states continues to expand. But a survey of area offices of the Texas employment Commission indicates skilled labor remains in short supply. In such isolated areas as Midland and Odessa, the problem of attracting workers is exacerbated by shortages of housing. In the large urban centers there is an increasing need for executive secretarial and skilled clerical help in all industries. Because the demand for workers is so high, the increase in the minimum wage at the beginning of the year is not expected to affect most pay scales. Important exceptions, however, are the retail trade and food service industries. A higher minimum wage will cause some retailers to trim their sales staffs.
The number of active drilling rigs continues to grow. In Texas, for example, 801 rigs are operating, compared to 693 a year ago. As a result, drill pipe and tool joint attachments are in tight supply. Forty percent of the state's drilling contractors have new rigs on order, as compared to 10 percent two years ago, and another ho percent plans to order new rigs in the near future. The lead time required for a manufacturer to deliver a new rig has stretched to six to eight months from four to six months last spring.
The announced increases in planned capital expenditures by the petroleum processing industry appear to be leveling off. Plans for a billion dollar ethylene plant to be constructed and operating by 1982 were shelved recently, although one of the two partners in the venture is willing to revive the project if another partner can be found. A survey of the refining industry suggests that there are no plans to build large refineries in the foreseeable future. The only exception to that view is if and when offshore production is developed on the Atlantic seaboard, a few large refineries may be built on the East Coast. Future additions to capacity in the industry will come from small specialty refineries, and existing refineries will be modified to increase the output of no-lead gasoline.
Construction of apartment buildings is increasing at a rapid rate in Texas. Almost 8,000 multifamily starts were recorded in August, while single-family starts are increasing at about 6,000 units a month. A growing number of observers and participants in this business express concern that overbuilding could exist in the large urban centers by next summer. In that case, rents would level off and even decline in some areas.
Mortgage loan demand at District S&Ls remains strong, and most associations report that they have all the business they care to handle. Savings inflows continue at a fast clip, but a seasonal slowdown from the strong inflows experienced earlier in the year was noted by several respondents. Rates range from 8 3/4 percent to 9 percent on conventional mortgages. Most respondents expect rates to generally hold steady into next year. Moreover, the current runup in money market rates has not triggered disintermediation, nor is it anticipated in the near term.
According to preliminary results of our latest survey of agribankers, farm borrowers from banks are going to be cut back about 8 percent. Inadequate farm income, insufficient equity, and poor management were cited as reasons borrowers will fail to qualify for further financing. It is reported many agricultural loan repayments are being made from outside income—minerals, business, savings, or sales of assets. Participations in the guaranteed loan programs of the Farmers Home Administration and Small Business Administration are up, and a few additional banks are utilizing the seasonal borrowing privilege at this Bank.
The longshoremen's strike is having a minor impact at Texas ports. All conventional break-bulk and mixed cargoes are being handled as usual, and only container ships are being picketed. Most exporters halted foreign sales in mid-September in anticipation of a general strike, but sales resumed once it was clear that the strike would not affect break-bulk carriers.