April 11, 1979
The economy of the Eleventh District continues to advance, according to the Directors and businessmen surveyed, but the Teamsters' strike is beginning to disrupt business activity. Consumer spending remains strong with both department stores and auto dealers reporting recent gains in sales volume. Bank loans outstanding continue to grow at the same reduced rate that has prevailed since the start of the year. Mortgage lending activity by savings and loan associations is down substantially from last year's peak and appears to be slowing further. New orders and capacity utilization remain high in most manufacturing industries. There is a noticeable rise of resentment about inflation, and the Government's inability to handle the problem effectively.
The Teamsters' strike forced the temporary closing of a local GM assembly plant due to a lack of parts. Other manufacturers are watching the situation closely and indicate a prolonged strike would be harmful. The strike has not appreciably affected the movement of goods at the port of Houston, although some merchandise that would normally leave the port is being warehoused.
Department store sales continue to increase and remain slightly above last year's Easter sales period. Early spring sales promotions are helping to boost sales volumes. Many executives anticipate a slowing of sales in the second half of the year but add signs of a widespread slowdown are not yet evident. Inventories remain near desired levels.
Auto sales continue to make a strong showing. Gains largely reflect the increased popularity of economy-size cars, although one dealer notes that sales of big cars are picking up again. Inventories of trucks and small cars are low.
Loans outstanding at District banks continued to climb at the somewhat slower pace established earlier this year, but loan commitments appear to have risen sharply in March. Much of the strength in lending is centered in energy-related activities. Consumer lending appears to have quickened recently. Most types of real estate lending also remain strong, although some weakness in mortgage warehousing is noted. Deposits are showing essentially no growth.
Preliminary results from the quarterly survey of agribankers suggest little overall change in agricultural credit conditions since the first of the year. Many rural banks report a normal seasonal weakness in loan demand. Banks continue to be very selective in making loan commitments, and few are actively seeking new farm loan accounts. One noticeable change since the last survey is an apparent improvement in bank liquidity in the High Plains region of Texas. In addition to normal deposit growth generated by crop sales in the first quarter, several agribankers in that area note lending activity by the Farmers Home Administration and the Small Business Administration has contributed to an improvement in loan repayment rates and to increased bank deposits.
Savings and loan associations report that mortgage lending remains lackluster and deposit inflows are weak. Some S&Ls experienced net deposit outflows in early April, apparently reflecting consumer cash needs to make income tax payments. Lower interest rates on money market certificates caused an initial reduction in the level of those deposits, but most S&Ls report the effects have been relatively mild.
Manufacturers report steep increases in finished goods prices. Although increases in wage rates are moderate, the growing shortage of skilled labor is forcing labor costs up as many firms find it necessary to start training programs. Raw materials and intermediate-goods prices continue to rise rapidly.
New factory orders are increasing at a moderate pace, and back orders are heavy as capacity utilization remains high in most industries. Although delivery times are lengthening, shortages of materials and parts remain isolated. Increases in new orders for machinery, textiles, and apparel continue strong. Bookings for drilling equipment and transportation equipment remain at high levels, but some weakness is noted among manufacturers of food service equipment. Inventories generally remain near desired levels.
New construction plans for manufacturing plants this year are not expected to match last year's strong increase. One area of potential weakness is the petroleum processing industry where uncertainty over the availability of feedstocks has cut into projected plant expansions. However, if the production of chemicals continues to increase as it did in the first quarter, construction in that industry could pick up appreciably. Construction of electric generating plants is also slower this year than last year. An improved profit outlook for steel producers and fabricators is expected to boost construction outlays to replace old facilities, possibly as soon as late this year. Construction spending by the paper industry is also expected to increase sharply.
Discussions with small groups of businessmen reveal rising resentment against the failure of Government to deal more effectively with inflation. The continued onrush of Government regulation is another very sensitive issue. Declarations that they have stopped trying to comply are heard, especially from small businesses.