June 25, 1984
The Eleventh District's strong economic recovery continued. District manufacturers recorded increased orders in all sectors, including the long-depressed oil and gas drilling business. A pick-up in drilling activity arid near-normal inventory levels suggest that the prolonged slump in the energy sector is ending. Auto and retail sales continue to outpace last year's performance. Higher interest rates and fears of overbuilding have led to a decrease in permits for residential arid commercial construction. Drought conditions are seriously affecting many District farmers.
District manufacturing continued its pattern of growth with strong gains in the production of electronics, primary metals, and nonelectrical machinery. The demand for electronic products related to computer applications is exceptionally strong. Orders of primary metals and nonelectrical machinery continue to be boosted by demand for autos, consumer durables, and even equipment targeted for the energy industry. Industrial firms are refurbishing or adding to their existing space and acquiring new equipment. This has increased expenditures for metal and wood structures, heating and cooling units, and machinery. High levels of construction are continuing to fuel the demand for lumber, concrete, and brick, with some plants running multiple shifts. Respondents are generally optimistic tout the economy. However, most do not plan significant inventory increases because of concerns over the possibility of higher interest rates. Some shortages have occurred and manufacturers have been forced to increase lead times for orders of steel coils, sheet metal, wire, and cable. Neither the shortages nor strong product demands have had a significant effect on prices because of intense competition.
The number of active drilling rigs in June was 21 percent above the year-earlier levels. The rebound in drilling has increased the demand for tubular goods and oil field machinery. Inventories of drill pipe have finally fallen to desired levels, having declined from 6.2 million tons in 1982 to 2.9 million tons in the first quarter of 1984. Producers of oil field machinery are working off their excess inventories. Offshore drilling continues to be a particular source of strength.
Auto sales remains at high levels. Recent interest rate increases have not affected sales much. Shortages still exist for many popular models. Dealers expect the current pace of auto sales to continue because of pent-up demand from consumers who put off purchases during the last recession.
Retail sales continue strong with both soft and durable goods sharing in the growth. Some respondents report inventory controls are being relaxed in the face of this strong demand.
Residential construction showed additional signs of slowing. Fears of overbuilding continue to prompt caution in the multifamily market. Multifamily permits increased sharply in April over March, but the number of permits issued in the first four months of 1984 was 10 percent below the level for the comparable period in 1983. April permits for single family homes were 6 percent below the March figure and 16 percent below the year-earlier level. Respondents cite higher interest rates as motivating the decline in residential construction. Many noted that adjustable rate mortgages have moderated the decline.
After a particularly strong March, office and commercial construction dropped in April. The number of permits issued in April was equal to last year's level, although the value was 25 percent lower. Respondents report that high vacancy rates and recent interest rate increases may lead to further declines in construction. Dallas is an exception. The value of permits issued in Dallas for the first four months of 1984 is 72 percent above the year-earlier level.
Year-over-year increases in loans at the District's large banks continue to exceed 20 percent. The rate of loan growth for saving and loans is averaging about 30 percent on a year-over-year basis. The growth in real estate loans at the District's large banks and Texas savings and loans, however, has slowed. Respondents reported that recent interest rate increases have induced them to be more cautious in real estate lending.
Farmers in about one-half of Texas are plagued by drought. Farms and ranches in this area produce about 44 percent of Texas agricultural cash receipts. Harvests of winter wheat in the drought zone are significantly lower than normal. Other farm income remained stable. Cotton prices increased eight percent in May over April, while wheat, corn, and livestock prices were modestly down.