January 2, 1980
The economy of the Eleventh District continues to expand at a reduced rate of growth, but inflationary pressures persist in many sectors. A late surge in Christmas buying pushed dollar sales volumes ahead of the level a year ago, while new auto sales are off sharply. Total factory output has declined slightly, although production in many industries continues to grow. Auto production has been cut in half, but demand for building materials remains at a high level. Two programs are in the offing that would stimulate the listless residential mortgage market in Texas. That could put a strain on the production capabilities of the construction and building materials industries, since nonresidential building is on the rise. Loan demand at banks is falling off.
Holiday sales at District department stores, measured in nominal dollars, ran ahead of the level posted a year ago. Sales were boosted by a wave of buying during the week before Christmas, the extra shopping day this year, and widespread price discounting. Current inventory levels appear to be well within manageable limits and continue to be closely monitored. The outlook for sales is mixed. Local managers of national chain stores anticipate a slowdown in sales next year, while executives of major urban shopping centers expect sales to hold up well.
New auto sales are reported to be down as much as 25 to 30 percent, according to domestic car dealers, while foreign car dealers indicate sales remain ahead of a year ago. Tight credit requirements, especially at credit unions, are a major drag on sales. A foreign car dealer estimated his sales would be 20 percent higher if credit conditions were the same as a year ago. Inventories of domestic autos are high generally, while stocks of foreign cars are on the low side.
Total production in manufacturing is off slightly but remains ahead of the level a year ago. Output in many industries continues to grow, and demand for labor shows no sign of slackening. Drilling activity has exceeded a 22-year high and continues to buoy demands for a wide range of inputs, while construction demands continue to press the production capabilities of most building materials industries. The biggest setback in manufacturing is auto production. The GM assembly plant in Arlington, Texas closed in mid-December. The first shift returns to work January 2, but the second shift is on an indefinite layoff. Another area of weakness is petroleum refining, where lower consumer demand and higher imports of refined products are holding refinery runs below year-ago levels.
The mortgage market in Texas is virtually shut down, but two programs promise to rekindle mortgage lending. Several cities among the 16 eligible are rushing to sponsor municipal bond programs that will make mortgage funds available to homebuyers with incomes of less than $30,000 a year. In addition, President Carter is expected to sign a bill into law that removes the usury ceiling on mortgage loans on January 1. Conventional mortgage rates in Texas would likely rise from the current 12-percent ceiling to about 13 1/4 percent, according to S&L executives. Some consumer resistance to larger interest payments is anticipated, but many buyers may not flinch at paying a higher rate.
Increases in highway, large commercial, and industrial projects will bolster current demands for inputs to the construction industry. And if the residential mortgage market turns around, an increase in housing could create substantial bottlenecks in the availability of building supplies. Builders report continued shortages of labor and materials. Demand for labor remains high in all categories of construction jobs—unskilled, skilled, and managerial. Tight supplies of sand, gravel, cement, and a wide range of heavy building materials persist. Delays of up to 18 months are reported on deliveries of some materials, and construction costs are estimated to be rising 20 percent a year.
Loan demands at commercial banks have slowed sharply in the last three months, reflecting the increase in interest rates. Nonetheless, borrowing for commercial and apartment building and energy-related activities remains strong. Many banks report consumer loans—particularly for automobiles—have softened, although credit card usage is up moderately. A few banks report slightly higher delinquency rates on consumer loans. Business loans at large commercial banks are falling off sharply in most industry categories.
Total deposits are slowing. The inflow of demand deposits is declining, while time deposits continue to grow. Banks continue to rely on money market certificates and large CDs for funds and are having no problem in selling them.