November 12, 1980
Business conditions in the Eleventh District are somewhat improved from a month ago. However, survey respondents agree that additional increases in interest rates will curtail the current expansion. The growth of department store sales is stronger this month, and car and truck sales are improving. Inventories of unsold homes are accumulating, and housing starts have slowed in response to declining sales. Total loan demand is expanding slowly, while repayments of agricultural loans remain difficult. Factory output remains mixed.
All major urban areas in the Eleventh District show renewed growth in retail sales. Price discounting and sales promotions are active as retailers strive to increase market share. While retailers are optimistic about the coming holiday sales season, they are cautious in expanding inventories, preferring to risk a loss in sales rather than accumulate excessive stocks.
Auto dealers report improved sales. The introduction of the 1981 models is said to be helping sales, although some buyers are deterred by the high sticker prices. Smaller models are selling best. Most sales are financed through auto manufacturers' credit divisions, including those of a large Datsun dealer. Inventories are adequate and closely controlled.
Housing starts continue to slide, and builders' inventories of unsold homes are rising. Still, demand remains strong as people continue to move to the Southwest. Sales of higher-priced homes remain stable although prices are softening.
Commercial construction activity in the District remains very strong, and the outlook is for continued growth in Houston and South Texas. However, a decline in bidding on new construction contracts in North Texas suggests building activity in that part of the state will slow in the future. Heavy construction and highway building continues to decline as Federal funding is curtailed.
Total loans at District banks are growing slowly. C&I loan demand continues to be buoyed by the oil and gas industry, although some is due to inventory accumulation at department stores and in auto-related industries. Permanent construction financing has been almost unavailable since life insurance companies left the commercial mortgage market. However, a few projects are still being undertaken as some banks are willing to make preferred customers interim construction loans that are unsecured by permanent financing.
Consumer credit is softening. Mortgage loan demand is strong, yet commitments continue to decline as fewer potential buyers can qualify for loans. Mortgage companies report loan volume is half of the level six weeks ago. The number of defaults is beginning to grow. FHA-VA foreclosures in Houston are up 32 percent from last year. Demand for home improvement loans is very strong, but credit card usage is flat.
Net inflows of deposits at banks and S&Ls are even with last month's levels. Liabilities of S&Ls continue to move toward shorter maturity certificates, and liquidity levels are as high as 13 percent.
Conditions in manufacturing remain mixed throughout the District. Sales continue to rise for electronics and suppliers to the oil and gas industry. Drilling is at record levels, and order backlogs for new rigs exceed 12 months of production. Demand in other industries is less strong. Oil stocks and chemical inventories remain high on the Gulf Coast, but chemical shipments are rising. Lumber and wood shipments are declining from September's peak, and prices remain below the level a year ago. Manufacturers of construction equipment report a slowdown in orders in the last 30 days.
The rise in labor costs shows little sign of slowing. Wage increases throughout the District are averaging 8 to 9 percent annually. The biggest gains are in energy-related industries. A manufacturer of oil tools reports union workers negotiated a 17-percent increase in the first year of their new contract.
Agricultural conditions remain substantially unchanged from last month. Loan repayments continue to slow as crop failures are still adversely affecting farm incomes.