March 16, 1987
Some important sectors of the Eleventh District economy remain weak, but signs of recovery are evident. Orders to manufacturers are growing, although very sluggishly. The drilling rig count slipped in February after growing at a fairly steady pace since July. Auto sales have dropped considerably and retail sales remain low. Construction is declining at a quickening pace, chiefly because of reductions in residential building. The balance sheets of District banks reflect the area's general economic performance, which is still below year-earlier levels. District cattlemen are selling their livestock at substantially higher prices than last year.
Manufacturing
An increasing number of manufacturers are reporting some expansion
in orders. Nevertheless, reductions in demand from the weak
construction and energy sectors have left most durable goods
producers with sales that are unchanged since the last survey.
Orders from outside the District are helping to prevent further
declines in output by construction-related manufacturers. Stability
has returned to the semiconductor industry after two years of
declining orders and plant shutdowns. Sales by non-durable goods
manufacturers are up slightly, on average, but conditions vary
widely among individual industries. Chemical producers report
gradually increasing demand. A growing number of District
manufacturers—including producers of lumber, paper, electronics,
and chemicals—report that the decline of the dollar has led to
expansion in orders for their products.
Drilling
The drilling rig count in the District states fell in February, on a
seasonally-adjusted basis, after rising in almost every month since
July. Despite the increases, the February 1987 count was 55 percent
below that of February 1986, although the year-over-year rate of
decline has been slowing. Leading indicators of drilling activity
are mixed but overall they point to little if any gain in the rig
count.
Auto Sales
Sales of automobiles fell dramatically in January from December and
showed little growth in February, according to District auto
dealers. Most respondents ascribed the low sales in part to local
economic weakness. They said that heavy auto buying in December, in
anticipation of tax law changes, had also diminished recent sales.
Inventories have risen as a result. Although dealers hope for some
seasonal increase in the next few months, their overall outlook is
for continued slow sales.
Retail
Retail sales remain sluggish and retailers report small cutbacks in
employment. Sales of big-ticket items such as furniture and
appliances remain particularly low while demand for some lines of
clothing is showing modest increases. Most respondents say they
expect continued weak sales for the next few months, but they
anticipate some gains by midyear.
Construction
Construction values continue to decline in the District, with the
largest reductions occurring in residential building. The number of
building permits issued in the District has fallen significantly,
with large year-over-year decline in multifamily and, more recently,
in single-family permits. Respondents attribute the residential
building decline to a large stock of unsold single-family homes and
to high vacancy rates for rental units. The values of non-building
and nonresidential construction contracts have also showed recent
declines. Office vacancy rates in the District's large cities
continue to rise.
Banking
The balance sheets of large District banks still show declining
deposits, increased reliance on borrowings, and reductions in some
types of loans. Deposit reductions are being led by declines in
large time deposits, but transactions deposits are also slipping.
Business loans are falling. Real estate loans continue to increase,
but at a decreasing rate. Securities holdings are markedly up from a
year earlier. In contrast to the situation at the large banks, total
deposits at all commercial banks in the District remain stable, with
declines in large time deposits offsetting the gains in other types
of deposits.
Agriculture
Income prospects for District farmers and ranchers are mixed.
Projected reductions in world cotton supplies, together with
increases in world demand, should result in higher prices for cotton
farmers. Feed grain prices are down by more than 30 percent from a
year earlier and show little likelihood of a marked increase. Feeder
cattle are in heavy demand with prices 11 percent higher in mid-February l987 than a year before. In January, the index of prices
paid to Texas farmers increased 3 percent from December but still
remained slightly below a year earlier. Rising livestock prices we
responsible for the increase in the farm price index. The crop
component of the index declined and it is substantially below the
year earlier level.