March 25, 1981
The economy of the Eleventh District is expanding slowly, and the outlook is for a continued slow rate of growth. Department store sales show increases in excess of the rate of inflation, and new car sales are rising in response to manufacturers' rebate programs. Loan volume and deposits are increasing at commercial banks but declining at S&Ls. Construction activity is rising, with the boom in commercial projects continuing and the rate of housing starts increasing slowly. Respondents in the manufacturing sector report no changes in output and employment levels.
Nominal sales at District department stores have risen slightly since the time of the last Redbook survey and are up 12 percent from year-ago levels. Continued increases are expected in coming months. Respondents attribute the increase in sales to unseasonally warm weather and a relatively low level of consumer debt. Use of retail stores' credit cards is rising moderately. Apparel and other soft goods account for most of the growth in sales. Purchases of furniture and appliances are depressed, and these items are being promoted heavily. Inventories are lean but in line with managements' sales projections.
Automobiles sales are being stimulated by manufacturers' rebates, but dealers expect sales to fall when the promotions end. Sales of foreign and domestic models for which rebates are not available are also up. Prices on used cars are rising, and models in "good" condition remain in short supply. Inventories of new cars are trim.
Total loan volume at commercial banks is up slightly from the previous survey period. Energy-related industries account for most of the growth in loans. Other manufacturers are holding down financing needs by tightly controlling inventories. Large firms are substituting commercial paper for bank loans. Many banks are restricting consumer loans, on which yields are limited by state usury ceilings. S&Ls report a continued decrease in mortgage lending, but the level of construction financing is unchanged. Foreclosures on interim construction loans are up slightly as some builders of single-family houses experience cash flow difficulties, but this is not a major source of concern for S&Ls.
The volume of deposits is slightly higher at commercial banks but declining at S&Ls. NOW accounts show continued growth but at a decreasing rate. Deposits in certificate accounts are down from last month.
Overall construction activity in the District is still rising. Commercial building is being fueled by a heavy inflow of foreign funds and shows no sign of slowing. Also, state laws prohibit insurance companies from owning residential property, so these institutions are investing solely in commercial projects. Residential construction—led by apartments, townhouses, and condominiums—is advancing steadily from a previously low rate of starts. Costs of construction materials are leveling off, apparently because the low volume of residential starts and the decline in nonbuilding construction have reduced demand.
Manufacturers report no significant changes in levels of production, new orders, and employment, and they expect none in coming months. Inventories remain tightly controlled. The defense industry is preparing to increase production, but the impact is not yet being felt in the local economy. Chemical producers report small rises in production and sales from previously depressed levels. Materials costs are stabilizing in most industries, although chemical manufacturers are attempting to pass on price increases. Refiners plan to temporarily close some plants due to falling sales and record inventories. Capital expenditures for most firms are limited to modernization for increased efficiency instead of expansions in capacity.
Planting of primary crops is nearing completion in South Texas, and rains have given a needed boost to winter wheat and pastures across much of the District. Farm loan demand at rural banks remains seasonally weak. Requests for farm loan extensions and renewals have been more numerous than usual in areas where severe drought was experienced last year.