Beige Book Report: Dallas
December 1, 1987
The District economy continues to grow very slowly, driven mainly by expansion in manufacturing. Construction activity is showing renewed signs of weakness. The rise in drilling has begun to abate. Retail sales continue to be sluggish while auto sales are particularly weak. The balance sheets of District financial institutions fail to show any marked improvement. District agricultural product prices are markedly above a year earlier.
Manufacturing
Most District manufacturers indicate that demand for their products
has risen somewhat in recent months, but manufacturers tied to the
construction industry report slight declines in orders. Producers of
oilfield equipment and other energy-related goods report gradual
increases in output that are tied to increased drilling activity.
These manufacturers expect additional expansions in sales next year
as long as drilling activity does not fall below recent levels.
Output remains high among defense contractors, but they express some
concern about the negative effects deficit reduction might have on
future defense spending. Chemical manufacturers and refiners
continue to report strong demand. Orders to electrical and
electronic equipment producers are stable and above year-earlier
levels while orders to steel producers also remain strong. Most
apparel producers cite increases in output over last year.
Manufacturers of construction-related goods report that sales have
weakened further on a seasonally-adjusted basis, but they say that
the trough of the regional construction cycle is near.
Drilling
The District drilling rig count declined slightly in October after
rising the previous three months. Many analysts believe that the
adjustment to $19-20 per barrel oil is nearly complete and, if the
oil price remains in this range, that the rig count will soon reach
a plateau. The recent performance of the well permit and seismic
crew count data support the claim that the rig count will not change
much in coming months.
District construction appears to have resumed a protracted downturn that had abated during the second quarter of 1987. In the third quarter, the value of construction contracts in District states fell below that of the previous quarter and below that of the third quarter of 1986. Both residential and nonresidential construction contracts slipped. Nonbuilding construction activity, which showed strength in the first half of this year, has also begun to fall. Single and multifamily residential building permits are declining, as well. Construction employment, which responds with a lag to fluctuations in building contract values, has stabilized in recent months.
Retail
Sales by District retailers remain weak. Some respondents say their
sales are down by as much as seven percent below a year earlier in
nominal terms. Although merchants did not report any major
employment changes, some said that slow sales may reduce the need
for hiring during the upcoming holiday season.
Auto Sales
District auto dealers say their sales are declining because
manufacturers have ceased to offer promotional incentives and
because of sluggishness in the District economy. Most dealers do not
attribute much of their sales weakness to the decline in stock
prices, although they say that it is hard to point to specific
factors. Some respondents report that their inventories are above
desired levels. Prices of imports continue to rise rather gradually.
Financial Institutions
Despite slight month-over-month increases in September and October,
deposits at the District's financial institutions are unchanged from
a year earlier. Total deposits at large District banks continue to
decline and, in October, were 13.3 percent below a year earlier.
Although the financial crisis at District thrifts shows little
evidence of abatement, there has been some continued slow growth in
deposits at these institutions due to gains in small time deposits
offsetting declines in large time deposits. It has been argued,
however, that such increases as have occurred in small time deposits
are largely the result of interest being credited to existing
accounts.
Agriculture
Livestock and cotton continue to be the bright spots for District
agriculture in 1987. The stock market crash is said to have
contributed to the uncertainty that generated recent wide
fluctuations in futures market prices for livestock. Nevertheless,
cash prices for livestock have lately remained relatively stable. In
the near future, the effect of diminishing supplies of cattle is
expected to be offset by increasing supplies of chicken and pork, so
that upward beef price movements will be limited. Livestock profit
margins, although narrowing, are still high. Generally favorable
weather in the second half of the growing season and relatively high
prices have aided District cotton farmers. District cotton yields
are up 15 percent over last year. Average agricultural land values
are still failing but in some cotton growing regions in West Texas,
land values are rising for the second consecutive quarter.