January 30, 1985
Economic growth in the Eleventh District continues its slow pace. Manufacturing sales growth is negligible overall. Retail sales never approached expectations for the holiday season and remain relatively slow. Oil and gas drilling is increasing slightly, but falling oil prices continue to prevent a significant recovery. Residential construction continues to slow with overbuilding remaining a problem in most markets. The strongest sectors are auto sales and nonresidential construction, both of which remain well above last year's figures.
Manufacturing output growth in the District remains sluggish overall. Only nonelectrical machinery manufacturers consistently report improved sales largely as a result of the continued recovery in the oil field machinery sector. Some primary and fabricated metal producers report higher than expected unit sales, but these gains are offset by lower prices. Apparel manufacturers face increased seasonal demand, but gain s are not as strong as normal. Electrical machinery producers, especially semiconductor firms, report serious declines in demand. This had been the strongest sector of manufacturing but rising inventories have caused layoffs and lower production levels. Moderate weather has diminished the normal seasonal upturn in refining. Virtually all sectors report stable input and product prices.
The number of drilling rigs in District states remains relatively steady, posting slight gains in recent months. Respondents state that this is a normal seasonal upturn that occurs at the end of the year. The rig count, however, is still 1 percent below last year level. A weak oil price outlook has prevented significant gains. The exception to the overall sluggish drilling picture continues to be the Gulf of Mexico where the number of active rigs has increased over 20 percent in the last year.
Auto sales are very strong. Some respondents report that this December was the busiest ever and the first days of January maintained this pattern. The strength is widespread across different models. Higher shipments of domestic cars have reduced the inventory problems that plagued dealers throughout 1984.
The weakness of retail sales continued through the holiday season and into January. Sales volume, although fairly high, was lower than expected and was achieved only through widespread use of mark downs. Sales of virtually all categories, except electronics, were soft. The reduction in profit that accompanied the discounting has prompted retailers to adopt such cost-saving plans as reducing orders for 1985 and cutting employment. Retailers blame reduced business on slowing economic growth and competition for consumer income from auto and home sales.
Residential construction District states continues to slow. The permits issued in November were almost 50 percent lower than during November 1983. The biggest decline has been in multifamily units, although single family units have also declined significantly. Respondents note that lower interest rates may help clear the market of an existing surplus, but demand may not increase enough to induce significant amounts of new construction.
The value of nonresidential construction contracts in Eleventh District states was high in November and thirty percent over past year's level. The total did decline from October's exceptionally strong showing. The gain was concentrated in Dallas, San Antonio, and Austin. The increase occurred despite concerns expressed by respondents of overbuilding in these markets. Most categories of nonresidential construction contributed to the increase with major contracts awarded for construction of roads and other public facilities, offices, and hotels.
In December, deposits at large banks registered a second straight month of ten percent growth over last year's levels. All categories of liabilities increased. The pattern was similar at member banks although the size of the increase was smaller. Year-over-year loan growth at the large banks declined slightly in December from November but the gains in both of these months exceeded the increase of October. Fourth quarter growth in all loan categories was below the pace of the remainder of the year. Real estate and consumer loans led the increase in lending. Business loans continue their pattern of slow growth.
Texas farmers and ranchers, unlike those in the rest of the nation, are increasing their borrowings. Both Production Credit Associations and the Federal Land Bank in Texas report hefty increases in loans. These increases suggest that the asset position of District agricultural borrowers is relatively better than others in the nation. Good weather conditions in West Texas have resulted in a better-than-expected cotton harvest, raising the estimate of total Texas cotton production to 173,000 bales. Texas cattlemen, responding to higher spot and futures market prices, continue to market unseasonably large numbers of fed cattle.