September 16, 1984
The Eleventh District's recovery is slowing. Expansion in demand for manufactures has begun to decelerate. A decreasing rate of increase characterizes retail sales. The recovery in oil and gas drilling is more sluggish than earlier this year. Nonresidential construction remains very active, but the pace of growth has fallen. Most measures of housing construction are declining absolutely, both from a year earlier and from earlier months of this year. Drought continues to hinder the agricultural sector.
The recovery in District manufacturing is cooling. Lumber and wood products and stone clay and glass manufacturers report falling demand due to declining homebuilding. Some construction materials firms have reduced employment in recent weeks. Apparel manufacturers face slackening demand from wholesalers and some firms have temporarily shut down production. Electronic equipment manufacturers are experiencing moderate growth in demand, due to business investment and to defense contracting, but the rate of growth is unchanged. Demand in District primary metals, fabricated metals, and chemicals manufacturing firms is rising as a result of continued needs by nonresidential building and energy-related industries. Growth is not accelerating, however, and some respondents expect smaller gains in the future. Metal manufacturers cite stiff competition from imports as a continuing problem. Inventories of some types of drilling equipment remain above desired levels and improvement in sales is very slow.
District oil and gas drilling has been diminishing moderately but is widely expected to commence further growth very soon. Strength in offshore drilling has partially offset recent declines in land-based rigs. Past instability in oil prices explains the recent slowing in drilling. Lately, oil prices have begun to climb. This pattern, together with growth in the seismic crew count, a leading indicator of drilling, motivates anticipations of further recovery in drilling. Even after recent declines, however, the rig count remains significantly above a year ago.
Retail sales continue their year-over-year increases, but at a slower rate than during the first two quarters of 1984. The declining growth is concentrated in consumer durables. Sellers are having to make bigger-than-planned markdowns on sale merchandise in order to clear the market. Nevertheless, most retail respondents anticipate brisk fall and Christmas seasons, although they are increasingly uncertain about sales prospects for early 1985.
Automobile dealers are still realizing record sales in the District, although they are moving into a period traditionally characterized by seasonal slowdowns. Dealers have become concerned about the possibility of strikes at the auto plants. Some dealers also express fears about the possibility of rising interest rates. Slower sales through the end of the year are widely expected in the District.
The rate of increase in the number of nonresidential construction projects is beginning to slow, but this market remains very active in the District. Dallas leads the nation in the number of square feet of office space under construction. There is increasing concern about overbuilding not only of office space, but also of retail square-footage.
Residential construction in the District continues to fall. The bulk of the residential permit decline is in multifamily residences, where overbuilding has been a significant problem for some time. Apartment vacancy rates in the District are generally high compared to the nation and further slowdowns are expected in apartment building. Despite the recent decline in mortgage rates, builders continue to blame high rates for a current weakness in single-family sales.
The deceleration of the District recovery is reflected in a number of financial statistics, but not in all. Year-over-year growth in total loans and securities at large banks is ebbing. The pace of expansion in business and real estate loans at large banks is slowing, although real estate loan volume is well above a year ago. The rate of increase in consumer loans is accelerating, as it has throughout 1984. Year-over-year deposit growth remains flat for all member banks in the District, but is declining at large banks.
A drought continues to punish agriculture in southern Texas. Even so, preliminary 1984 estimates of Texas crop production far exceed the PIK-diminished output of 1983. However, this year's harvest estimates for some crops are lower than for more representative years, such as 1981. Increased national production has depressed the price outlook for most crops, although reduced meat supplies mean potentially higher prices for cattle. Because Texas cattlemen have planned large marketings in the third quarter, they are likely to benefit from the higher prices. A July survey of Texas agricultural banks shows 17 percent reporting any farm or ranch bankruptcies, down from 21 percent both for last January and for July 1983.