September 20, 1983
The Eleventh District economy continues its recovery. Production of oilfield equipment remains depressed, but other manufacturing industries showed further signs of strength. Growth in retail, government, and industrial construction, coupled with announcements of several, large office projects, generated an unexpected upturn in commercial construction. There is some evidence that residential construction has started to slow. Retailers and auto dealers throughout the District are optimistic about sales in the third and fourth quarters. Loan demand at District member banks is still sluggish, but large banks expect business loan demand to be moderately stronger through year-end.
Moderate increases in manufacturing production continued. Unusually, high orders in July and August boosted order backlogs at electronics firms, which have been producing at or near capacity. Despite price declines and cutbacks in distributors' orders, the rate of production of lumber and wood products remains high. Apparel production turned up sharply during the last six weeks as gains in national retail sales worked through to the manufacturing level. The large volume of new orders at the wholesale apparel market in August indicates that the near-term outlook for apparel production remains strong. Steady increases in the demand for chemical products have been matched with output gains. Production of oilfield goods is roughly stable at low levels although small increases in drill bit manufacturing were reported. Further gains in demand from auto producers and construction contractors pushed up steel production slightly in August. Prices and profit margins for steel producers are still below year-earlier levels.
Employment in the District, is responding to the turnaround in economic activity. The seasonally-adjusted unemployment rate for Texas was 7.3 percent in August, down from a 9.0-percent peak last March. Job growth in the durable goods sector reversed the decline in manufacturing employment. Employment gains in the electronics and construction materials industries more than offset slowing declines in oil-related industries. Continued strength in auto sales and housing construction led to further employment increases in the primary metals sector.
Drilling activity in Texas has shown some additional signs of recovery. Despite stable crude prices, the seasonally-adjusted rotary rig count in Texas has increased for two consecutive months. Lower labor and capital leasing costs are cited as factors contributing to the turnaround. Inventories of unused rigs remain high. Poor market conditions have made contractors unusually reluctant to sell the components of unused rigs. As a result, the number of idled rigs may not fall by as much as had been expected.
Growth in residential construction slowed in July as sales expectations were revised downward in response to higher interest rates. The volume of single-family permits in July was off sharply from the near-record June level, but it was still sufficiently high to maintain a moderate rate of growth during the next few months. Multi-family permits also fell. Given the volatility of this series, it is not clear whether the drop marks a reversal of the strong upward growth in this sector.
Texas farm income remains mixed. Livestock producers face losses, while crop farmers generally anticipate higher income. The price of cattle coming out of feedlots is roughly $5 less per hundredweight than the cost of production. Corn and sorghum grain growers in the District are anticipating higher incomes. The drought in the Midwest Cornbelt pushed down yield estimates there and raised prices nationally. The West Texas drought has caused nearly $13 million in losses to cattle ranchers, but this is small relative to the $4 billion statewide cattle industry. In addition, cotton farmers in West Texas face losses above $100 million. The income of Texas cotton farmers as a group, however, will be above last year's depressed level because of higher prices.
Loan demand at District member banks is still sluggish.
Year-over-year gains remain in the 15-percent range. At large banks, business
loan growth picked up modestly in August and further gains are
expected. Real estate lending remains strong. Growth in deposits at
member banks has slowed somewhat faster than credit growth due to
greater reliance on borrowed funds.