December 6, 1983
Economic recovery in the Eleventh District is continuing and some sectors are showing strong year-end gains. Total manufacturing production is rising with particularly strong increases in manufacturing equipment. A seasonal slowdown in commercial construction has occurred but residential construction was unseasonably strong. Loan growth picked up at all member banks in the District, but business loan demand remains sluggish at large banks. Auto and retail sales continue at a brisk pace. Farm income will be higher this year than last.
Growth in manufacturing production in the District continued at a moderate pace. Gains in demand for nonelectrical machinery led to increases in total employment and in the number of hours worked. Production of capital equipment is particularly strong with orders for material-handling equipment leading the way. Orders for lumber and wood products, which usually decline at year-end, have remained steady. Capacity utilization at lumber mills is high, except in Houston where it has been significantly below other areas. Strong demand has kept capacity utilization and employment high at District aluminum plants. Inventories of aluminum products are still below desired levels, and the high order rate is impeding accumulation. Strong auto sales and increased capital spending have also buoyed steel orders. Steel fabricating firms now want to build inventories and add employees. Demand for fabricated copper from District producers remains sluggish because of strong competition from Third World producers. Orders at the October market for spring apparel products were the largest on record.
The number of active drilling rigs in Texas rose to 932 in mid- November. This was the highest level since early January and 39 percent above the mid-July trough of 669. Huge inventories are still plaguing the oil-field supply industry. Analysts expect more bankruptcies in that sector.
Department store sales in all major District cities were well above year-earlier levels. Even El Paso is reporting higher sales compared to last year although sales are still below pre-devaluation levels. Home furnishings are the strongest component, but clothing sales are picking up rapidly. Intense competition is expected to keep future price gains moderate.
District auto sales remain strong. October sales were above year- earlier levels throughout the District, but in Houston sales are down on a year-to-date basis. Dealers' profit margins have increased because a larger share of financing revenues is being retained and inventory carrying costs are lower. Tight inventories are still hampering sales somewhat.
Residential construction is likely to continue to slow next year. An unseasonably large increase in both single-family and multi-family permits was reported for October. Nearly 70 percent of these permits were for apartments and condominiums with the bulk of activity concentrated in Dallas. Concerns about overbuilding in the multifamily sector continue, and serious questions are now being raised about the means used to attract investors to some of these projects. Land prices appear to have been inflated by "land flips," a process by which a tract of land is sold several times in a short period to boost its value. The increase in single-family permits may be the result of builders accumulating inventories. Builders expect lower mortgage rates to stimulate sales.
Commercial construction remains strong despite a seasonal decline in October from September. On a year-to-date basis the value of commercial construction is up in virtually all non-energy dependent areas. Retail construction is continuing at high levels. For 1983, the value of permits for office space in Dallas will probably end up on par with the near record 1982 level.
Loans at member banks were up in October bringing the year-over-year increase to more than 16 percent. Business loans at large weekly reporters, however, declined in October after showing earlier gains. Real estate lending continues to be the strongest loan category. Total deposits at the large banks are below year-earlier levels with the largest declines in small and large time deposits.
Farm income in Texas will be higher this year than last because of increased livestock sales, higher crop prices, and the Payment-in-Kind program. Cattle and hog producers, however, continue to lose money on production, and bad weather has reduced cotton income.