November 30, 1988
The District economy continues to perform sluggishly. Growth in demand for manufactured goods is modest. Retail sales expansion is slight. Auto sales are down. In construction, contract values remain above levels for the first half of 1988, but employment continues to fall. Weakened oil prices have reduced District oil and gas drilling. Drought is becoming a more acute problem for agriculture.
Although reports vary greatly across industries, respondents in the District manufacturing sector generally note modest growth in sales. Among producers that sell both nationally and internationally, foreign sales are generally cited as growing faster than domestic sales. This distinction was made by firms across a broad spectrum of products including paper, nonelectrical machinery, and electronics. Electronic equipment manufacturers note some sluggishness in sales overall, and particularly in semiconductors, but they say that their export sales are still growing. Among computer-related manufacturers, consumer product sales are soft, while demand for business equipment remains fairly strong. Energy-related machinery producers say their drilling-related sales are falling but that they anticipate rising marketings to petrochemical producers over the next year. A number of chemical producers continue to note that their sales are high and that they are operating at peak capacity. Demand for manufactured products linked to the construction industry, including lumber and wood and stone, clay, and glass, is generally soft, but a number of producers say their sales are no longer falling. After strong growth in the demand for paper products during October, a lull in sales is apparent in November.
Patterns of retail sales growth vary widely across the District, but are reported as more stable than earlier this year. Respondents say that sales are strong and growing in Houston, San Antonio, and in the border communities. Along the border, a declining real value of the dollar has made U.S. goods more attractive to buyers from Mexico. By contrast, demand for retail merchandise is sluggish in the Dallas/Ft. Worth area and in Austin.
Reports are fairly consistent across the District that auto sales have been soft lately. In Houston, where reports had been positive in recent months, renewed weakness in sales is attributed to customer concerns over oil price instability. In Dallas/Ft. Worth, respondents link poor sales to the overall sluggishness of the area economy. Despite recent softness, sales in Houston are significantly higher than a year earlier. In Dallas/Ft. Worth, sales are unchanged from last year.
District construction activity remains somewhat above levels for the first half of 1988. Nonresidential contract values have shown little movement over the year, while residential values have expanded modestly since March. Nevertheless, after increasing four consecutive months, a three-month moving average of the value of construction contracts decreased in September. In September, both residential and nonresidential contract values declined in all three District states. District construction employment continues to decline, although at a somewhat slower pace than at the beginning of this year. Residential building permits have been flat recently.
Oil and gas drilling continues to slide in the face of oil prices that have remained below $15 per barrel for several months. The District rig count has fallen 17 percent since May and employment in some energy-related industries has recently begun to fall. After inching up in every month from February through August, Texas employment in oil and gas extraction declined markedly in September. Respondents say that declines in well permits and a weak outlook for oil prices suggest that drilling will remain weak in the next few months. Reports of cutbacks in drilling plans are widespread.
Drought is becoming a more acute problem for District agriculture. At the end of October, the geographic distribution of drought conditions was about the same as in early August, but drought intensity had increased. In some areas, as much as one-third of an average year's additional rain is needed to return soil moisture to normal levels. County extension agents report that many ranges and pastures are bare. Without significant rainfall this winter, the cost of supplemental feeding may threaten the profitability of cow/calf operations in high-drought areas.
Nevertheless, some farmers are benefiting from the dry weather. For Texas High Plains cotton producers the warm, dry weather of late October and early November has increased yields by as much as 10 percent. The national effects of the drought have resulted in year- over-year increases in prices paid Texas crop growers of 9 percent. Prices paid to Texas livestock producers are up 11 percent. These price increases signify losses to feedlot operators, however, because the cost of purchasing and feeding a cow now exceeds the price of fattened cattle.