May 12, 1982
The repercussions of the drop in crude oil prices have weakened the Eleventh District economy despite encouraging signs from the housing markets and a few other sectors. Housing sales and starts are still increasing, as are business loans and department store sales. And, despite the April decline in U.S. auto sales, District auto sales appear to have remained at March levels. Nevertheless, declines in oil and gas drilling and low production at oil refineries and petrochemical plants have reduced orders in the steel, fabricated metal, and oil well servicing industries. Total employment is declining and the unemployment rate is on the rise.
Oil field related activity continues to decline despite some evidence that crude oil prices are beginning to rise again. The number of drilling rigs operating in the District states has fallen 22.5 percent since the peak in mid-December. At 2,305 rigs, the count is currently 200 units less than a year ago. Oil well completions have fallen as well. Hence, oil well servicing contracts are also down.
The slow downward trend in manufacturing output spread to oil industry suppliers. While oil refining and petrochemical production stagnated, the production of machinery and equipment used in these industries fell. Steel firms, already hurt by declines in other industries, saw demand drop further as new orders for oil field equipment dried up. Demand for steel products by the commercial construction industry, however, held firm. Orders in the electronics industry have risen due to increased defense spending and greater demand for semiconductors. Apparel production remains at low levels.
Residential Construction continues to show minor improvement. New housing starts and sales are up to roughly the same levels as a year ago, when the housing industry entered the current slump. In addition, new mortgage commitments at Texas S&L's are increasing, although they are still below year-ago levels. Condominium sales are slowing. Condominium starts are approximately the same as they were in March. Apartment construction appears to be picking up from the slow growth of last fall.
The pace of commercial construction remains steady at a high rate. The majority of the activity is still in office building construction where it is estimated that there are enough projects already started to sustain the industry for two years. Announcements of new projects, however, remain below last year's heady pace.
Domestic auto sales have not changed much, but their product mix has. GMAC financing (12.8 percent) has increased GM sales at the expense of other domestic and imported autos. Large model domestics continue to sell well even though gasoline prices are showing signs of reversing their decline. Inventories have begun to creep upward in response to slipping sales at non-GM dealers. No significant change in sales is expected for the remainder of the month.
Lending activity at commercial banks has picked up. The percentage increase in the dollar value of loans for the year to date is well ahead of the average increase of the past five years. Loans to the petrochemical and refining industries show major increases since January. Real estate loans are trending upward. The decline in consumer loans has not yet abated. Construction loans, while showing a net decline since January, are well ahead of last year. Total deposits have increased since March as a result of strong growth in time deposits.
Department store sales have increased moderately. However, soft lines have sold below expectations due to unseasonably cool weather. Big ticket items continue to move slowly. Retail sales along the Mexican border still suffer from the peso's February devaluation, and probably will for some time. Department stores there are scaling down future purchases and trying to work off their swollen inventories.
The unemployment rate for Texas rose to a seasonally adjusted 6.5 percent in April, from 5.9 percent in March. A moderate increase in employment since February was overshadowed by a large increase in the number of people looking for work. The rise in unemployment is attributed mainly to layoffs in manufacturing, although in-migration of unemployed workers from the industrial Midwest was also a clear contributor.
Farm liquidations are numerous as high operating costs, coupled with low prices, keep farm incomes down. Increases in farmers' equity from inflation in land values have slowed. In some parts of the District, land values are deflating. The result is that farmers are increasingly unable to borrow to finance current production.