Beige Book Report: Dallas
March 23, 1983
The Eleventh District economy continues to show some signs of recovery primarily from gains in residential construction and related sectors. Weakness in the energy sector, however, is keeping unemployment high and industrial production low. Lending at commercial banks and savings and loans increased because of growth in construction loans. Auto sales are well above last year's level but below the robust monthly gains reported in January. Other retail sales are mixed; some areas are showing gains in real terms, mainly in spring apparel and big ticket items, but sales along the energy-dependent Gulf Coast and along the Mexican border are weak.
The Texas unemployment rate climbed to 8.8 percent in February from 8.2 percent in January. Layoffs in oil field equipment and related industries overshadowed gains in services and construction-related industries.
Drilling activity continued to decline sharply in February, although the rate of decline in early March slowed. Falling crude prices on the spot market, uncertainty about an OPEC price agreement, the natural gas glut, and seasonal factors contributed to the decline. In addition, rather than drilling for new reserves, larger oil companies are buying reserves from bankrupt firms. The recent OPEC agreement has reduced uncertainty about oil prices, but drilling activity should continue to fall as adjustments are made to lower oil prices and the excess supply of natural gas.
Manufacturing production is mixed. Oil field equipment production is still declining. Inventories have been greatly reduced, but at current drilling rates, still exceed a year's supply. Steel orders from commercial construction continued down, but orders of flatroll steel for auto production increased. Refinery production is stable, as is chemical production. Strength in residential construction is pushing up lumber and wood production as well as stone, clay, and glass output. Electronics orders were up, although manufacturers are concerned that this may be temporary. Orders for aluminum products increased sharply, but idled capacity has not been brought on line. Producers are concerned that buyers may be stockpiling before scheduled price increases take effect and labor contracts expire.
Deposit growth at commercial banks picked up. Declines in demand and time deposits were more than offset by gains in MMDAs. Rates on MMDAs were reduced and are now at or below large CD rates. Weekly inflows are now averaging just under $1 billion. Declines in the energy sector kept business loans weak. Business loan demand is expected to remain sluggish in the near-term. Real estate lending picked up, mainly from drawdowns on previous commitments. Seasonally-adjusted consumer loans increased modestly. A major bank lowered its credit card rate to 19.5 percent, and other banks may follow.
At S&Ls, net deposit inflows from MMDAs continued. Loan demand for residential mortgages has slacked off recently. Respondents suggest that a slight uptick in mortgage rates may have induced borrowers to wait for lending rates to turn down again. But demand for residential mortgages is expected to be strong in the second quarter. Demand for interim construction loans is high. Builders are increasing inventories to prepare for the prime selling season. Foreclosures have increased, especially in Houston, but not by enough to cause concern.
New car sales in February were substantially higher than last year's but a little below the January pace. Dealers expect a surge in sales towards the end of March when discount financing plans are scheduled to end. Inventories generally are consistent with dealer plans, except in Houston and San Antonio, where some dealers have an unusually large number of 82's. Used car sales picked up in late February and early March from generally soft levels.
Texas cotton farmers are expected to plant 22 percent fewer acres in 1983 than in 1982 because of heavy participation in acreage reduction programs. As a result, cotton prices should firm later this year. February cattle marketings were the second highest in three years. If this level continues, herds should be reduced enough by late spring to push up cattle prices and increase profit margins.
Residential construction is the dominant force in the Texas recovery. Single-family housing starts and sales are booming. Inventories of new single-family homes should increase during the next two months as January starts are completed. Builders are no longer waiting for a sale before beginning construction. Multi- family housing construction has slowed, but still is unseasonally high.
Commercial construction activity is relatively stable. Contacts indicate that the pace of retail and office building construction last month was even with January's. Retail construction is strong, but new announcements on office building projects are slow.