January 27, 1982
The economy of the Eleventh District shows further signs of softness. Department store sales rose sharply before Christmas, but auto sales remain weak. The pace of drilling is slackening, and manufacturers indicate further declines in new orders. Nonresidential construction remains at a high level, while interest rates remain a major obstacle to recovery in residential construction. Business loans continue to outpace consumer loans. Declining commodity prices are squeezing farm incomes.
Department store executives report that sales surged in the last two weeks of December, as they did a year earlier. But profit margins were much lower than expected because of heavy advertising and price cutting. Ladies' and children's apparel sold especially well. Retail inventories are at desired levels, and respondents anticipate consumers will be cautious in the next few months.
Auto sales remain low, and there is little hope they will recover soon. Imported models are selling slightly better than domestics. Used car sales are described as good. Dealers report low inventories of imported models and moderately high inventories of domestic models.
Drilling has been hampered by winter weather, and there are indications activity is slowing. New orders for rigs are declining, and some idle units are being stacked. Currently the lead time from date of order to delivery of a new rig is less than three months. Four months ago, the lead time was 12 to 18 months.
Manufacturing output is declining slowly. The high level of commercial and industrial construction in the District is holding up steel production, but excess capacity is increasing. Steel manufacturers are not able to pass on cost increases. Steel fabricators from outside the District are bidding on projects here, and work is being let at close to cost. Output of highway construction equipment is low. Manufacturers of electronics report increased sales to the Federal Government and a slowdown in sales to the commercial sector.
Labor markets are still fairly strong. Despite some layoffs and temporary plant shutdowns in manufacturing, the unemployment rate in Texas declined to 4.5 percent in December.
The pace of commercial construction remains high and is not expected to moderate this year. There is mounting concern the boom in office building will lead to an overhang in available space. As a result, some developers are finding it difficult to secure permanent financing for announced projects. Housing sales are up slightly. Starts of new houses will remain low until builders work off current inventories, which are in much better shape than in the 1973-75 recession.
The small volume of lending at S&L's is for condominiums or homes worth $300,000 or more. These loans are usually variable rate mortgages. Lenders report there are some takebacks on builder loans. Mortgage delinquencies and foreclosures are running a little higher than usual but are considerably below the national rate. Deposits are declining, as outflows to the money market continue. The small volume of new money deposited in IRA accounts is being used to increase liquidity.
The major strength in commercial bank loans continues to be in energy and related industries, but borrowing by many other businesses is also on the rise. The small gains in consumer loans continue to lag well behind the increase in business loan demands. Delinquencies are rising but are not considered to be a major problem. Banks are tightening restrictions on the issuance of credit cards. Deposits are increasing slowly. Activity in the new IRA accounts is fairly strong, but most of these balances are being transferred from existing accounts.
The outlook for farm incomes remains bleak. Bumper crops (both domestic and foreign) give farmers little hope for higher commodity prices. Cattle prices also continue to fall, but ranchers are optimistic prices will strengthen as marketings are reduced to build up herds.