September 10, 1986
The District economy continues to suffer from the weakness in energy and construction, but there is some evidence that the rate of decline in economic activity has slowed. The drilling rig count hit a low in June and has increased slightly since. The value of construction contracts grew during the three months ending in July, but remained well below a year earlier. The manufacturing sector is still sluggish overall, owing to weakness in construction and energy, but there are signs of improvement in some industries. Falling retail and automobile sales reflect the overall deterioration of the District economy. The level of liabilities in the District's large banks is declining. Ranchers in the District are expected to benefit from higher meat and poultry prices, but agricultural credit conditions continue to deteriorate.
Manufacturing
Although District manufacturers generally note continued sales
declines, reports of reductions are less widespread than earlier in
the year. Makers of electrical and electronic machinery and of
transportation equipment note some expansions in sales, but they
expect little growth for the rest of the year. Orders are up for
paper and allied products and for fabricated metal products. Among
apparel firms, sales are flat to slightly higher, as import
competition abates. Prices for lumber and wood have been
deteriorating recently due to large supplies, but District
respondents express optimism that strikes and possible tariffs may
reduce the strong competition from Canadian producers. Orders for
chemical and allied products are mixed, with no pronounced pattern
either of increase or decline. Sales by stone, clay, and glass
producers are falling from a year earlier, as a result of continuing
weakness in the construction sector. Orders of primary metals and of
non-electrical machinery are dropping due to decreases in demand
from energy and construction firms.
Drilling
The drilling rig count continues to register slight increases after
the decline was arrested in June. The number of well permits being
issued and the seismic crew count are still falling, although the
rate of decline for well permits has slowed. Respondents say that
OPEC's current attempt to raise oil prices is not likely to lead to
a significant resurgence in drilling.
Auto and Retail Sales
Auto and retail sales remain depressed. The largest declines are in
the weak, energy-dependent portions of the District. Auto dealers do
not expect sales improvement this year. They believe that the high
sales levels of recent years mean that replacement sales will
continue to be weak. Retailers, who generally expect the District
economy to begin to recover later in the year, anticipate some
growth in their business.
Construction
The total value of construction contracts increased in July for the
third consecutive month, but it remains well below a year earlier.
Gains in nonresidential and non-building construction stimulated the
recent upturn. Nonresidential construction has shown some vigor,
despite a significant decline in the value of contracts for office
buildings and retail space. Recent strength in virtually every other
category of nonresidential construction has helped to sustain
contract values. The value of residential construction contracts
continues to slip, in response to the overall weakness of the
District economy and to past overbuilding of multifamily housing.
The rate of decline has been very small. Increasing vacancy rates
have left the number of permits issued for multifamily building 40-
percent below the first quarter level. Further declines in
residential contracts are likely as soon as the weakness in
multifamily permits begins to be reflected in construction contract
values. Single-family construction remains fairly steady. Although
all types of construction remain below a year earlier, the
difference has narrowed to the 20-percent range from 40-percent
earlier in the year.
Banking
The balance sheets of the District's banks reflect the overall
weakness of the District economy. At the large banks, lending
activity is declining in all categories, with the exception of real
estate. The rate of increase in real estate lending, while positive,
has slowed dramatically. The level of total liabilities is slipping.
The largest decline has been in large time deposits. In a reflection
of the lackluster economic activity in the District, transaction
deposits at all District banks have diminished, despite double-digit
growth rates in the nation as a whole.
Agriculture
District farmers and ranchers are expected to earn higher incomes in
the second half of the year because of increased payments from
government programs and higher meat prices. In July, the index of
prices received by Texas farmers and ranchers was above a year
earlier for the first time in almost two years, largely owing to
strength in meat and poultry prices. Nevertheless, agricultural
credit conditions continue to deteriorate. Many farmers and ranchers
are still in financial trouble as land values continue to decline
sharply. Agricultural bankers expect 5 percent of their farm and
ranch borrowers to leave agriculture in 1986 because of financial
stress, up from 4 percent in 1985.