Beige Book Report: Dallas
June 23, 1987
The District economy remains weak overall. Nevertheless, the number of industries that appear to have reached their troughs has increased since the April survey. Respondents from most manufacturing industries report that sales have stabilized or are increasing. Energy industry indicators point to slow improvement. Construction remains weak, but declines in contract values have ceased for now. Liabilities of District banks continue to decline, but at a decelerating pace. Average prices paid to District farmers are increasing.
Although most District manufacturers report that their orders are either rising or have ceased to fall, industries linked to the construction sector note continued declines. Manufacturers of energy-related durable goods say that past reductions in their sales and employment appear to be over, but they do not expect marked increases in sales soon. Orders to steel producers continue to rise. Respondents from the electronic equipment and chemicals industries say that the falling dollar has led to continued increases in marketings of their products. Demand for oil refinery output is very strong. Apparel industry sales are up over a year earlier.
District drilling continues to increase. In May the rig count was only 4 percent below a year earlier and it was above the levels of earlier months in 1987. Leading indicators of drilling activity in the Distract point to continued slow improvement in the rig count. Both the seismic crew count and well permit applications increased in April and May. The price of West Texas intermediate crude oil has remained near $19 per barrel.
Indicators of District construction activity have shown some recent strength, but the belief that these increases signal a building recovery is not widespread. The value of construction contracts in March and April showed improvements compared with previous months. Year-over-year declines persist, but a much slower rate than earlier in 1987. The drop in multifamily building permits is still occurring at a fast pace. Despite the recent upturns in overall contract construction values, the lagged effects of past declines; have resulted in continued drop-offs in construction employment.
Retail sales in the District remain sluggish, with respondents reporting no recent significant changes in sales or employment. Sales tax receipts in Texas remain below a year earlier. Sales of home furnishings and of some apparel lines are weak, but sales of women's accessories are growing. Respondents generally express guarded optimism with respect to sales increases in the second half of 1987.
District auto dealers say that their sales rose in April and held steady in May, but that volume is below the year earlier level. Prices of domestic models have remained constant, while those of many imported models have risen substantially. Respondents expect that sales in the second half of 1987 will be higher than during the first half of the year but that sales will be relatively slow by historical standards.
The balance sheets of large District banks continue to show a reduction of deposits, but the rate of decline in deposits has slowed somewhat in recent months. Total deposits were down 8.7 percent in May from a year earlier with large time deposits down 14.4 percent. Borrowings by large banks continued to increase, although at a decreasing rate.
Business and real estate loans declined in April and May. Deposits at thrifts remain above a year earlier, but their rates of growth have been falling. Although the rate of decline in large time deposits has increased in recent months, strong growth in small time deposits has offset this reduction. Some savers are said to be redistributing their deposits among various S&Ls to maintain deposit balances below the maximum level covered by FSLIC insurance.
District farmers and ranchers show signs of increasing their incomes compared with a year earlier. For livestock producers, margins between feed costs and slaughter prices have widened markedly over the last twelve months. Demand for old-crop cotton remains strong and relatively high futures market prices have led to some increases in forward contracting for the new crop. The 1987 cotton crop is in excellent condition along the Rio Grande but cotton farmers face moisture shortfalls and low seed supplies elsewhere. Farmers' credit conditions seem to be stabilizing but the fallout among their lenders continues. From the beginning of 1987 through the end of May, six Texas agricultural banks closed, compared with the same number of closings for all of 1986.