July 5, 1979
Economic activity in the Eleventh District is slowing, but it does not appear to be directly attributable to the current energy situation according to Directors and businessmen surveyed this month. Department store sales continue to run just ahead of the pace of inflation even though auto sales appear to be slowing somewhat. The gasoline shortage and truckers' strike are having a mild effect on industrial output. Many industrial firms report some softening in demand for their products, and overall industrial activity appears flat. Bank lending at large banks remains very active; smaller banks, however, report some softening in loan demand. Deposits at banks and savings and loan associations continue to show moderate growth.
Department store sales are running slightly ahead of the 6- to 7- percent rate of increase in merchandise prices. Although unit sales are flat, a gradual erosion of unit sales is expected through the remainder of the year. Summer clearance sale promotions and price cutting are contributing significantly to sales. Retail executives expressed a need to cut inventories to bring them in line with the expected slowdown in sales. Auto sales are slowing and have fallen below last year's level, but the decline does not appear to be as steep in the Southwest as for the nation as a whole. Sales of fuel- efficient cars remain brisk, and inventories are tight. Dealers report delivery times for compact cars are lengthening.
Lending activity at weekly reporting banks remains very strong. Commercial and industrial loans, especially to energy-related industries, and construction loans continue to be among the strongest areas of loan demand. Consumer lending is also exceptionally active, prompting a few banks to be more selective in granting consumer loans to keep them within planned levels. Loan demand is somewhat softer and liquidity is tighter at smaller banks in the District. Many small banks report loan growth is currently flat and are anticipating a slowdown in coming months. Deposit growth is accelerating moderately at both large and small banks.
Net deposit inflows at savings and loan associations showed further improvement in recent weeks but remain well below a year earlier. The higher interest rates on savings accounts starting July 1 are not expected to either improve deposit flows or slow the transfer of funds from savings accounts into time accounts. Mortgage lending remains very sluggish in Texas apparently because of the state's 10- percent usury ceiling. The ceiling will be floated two percentage points above the 10-year Treasury bond rate starting August 28. The new ceiling is still expected to be somewhat restrictive, and lenders are also concerned that perspective borrowers will be reluctant to pay the higher rate.
The overall impact of the independent truckers' strike on District agriculture appears minimal thus far. Transportation bottlenecks occurred in the watermelon producing areas of South Texas where the greatest impact was on small farms that lacked storage facilities. Shipments are again in progress although some shortages of trucks to haul vegetables and cattle are still being reported in the District. The wheat harvest is well underway, and record output is projected. In Texas, production is estimated to reach nearly 115 million bushels, more than double last year's crop. Yields are projected at 40 percent above last year. Estimated yields and output are also substantially greater than last year in Oklahoma and New Mexico.
Dallas-Fort Worth and Houston are now on an odd-even gasoline rationing plan, and the long lines at gasoline stations have shortened, but many stations are open only briefly and intermittently. There has been no major disruption of business because of the gasoline shortage thus far. The independent truckers' strike appears to be having only isolated effects on manufacturing activity. Only a few of the firms surveyed reported problems arising from the independent truckers' strike. A few other firms see a potential supply problem developing if the strike continues much longer. The strike has not affected movement of cargo through the ports of Houston or Galveston.
Industrial growth appears to be slowing in many major industries, and unemployment has begun to rise slightly. Durable goods manufacturing is the area of greatest softening with small declines evident in machinery and metal production. Most drilling equipment manufacturers, however, have not felt any major effect from the decline in drilling rig count. They expect demand to remain strong for several years to come. Responses in the apparel and textile industry are quite mixed according to type of product. Jeans and skirt manufacturers continue to report healthy gains in new orders. Apparel manufacturing activity overall, however, has shown several months of decline. Newsprint remains in tight supply, and paper producers continue to operate at capacity.