March 15, 1989
The District economy is expanding slowly. Growth rates in the strongest sectors have been slowing somewhat, while some of the weaker sectors are strengthening. The overall pace of expansion appears to have changed very little. Manufacturing growth continues, but at a milder rate than late last year. Retail sales are accelerating, while auto sales are climbing at a steadier and more modest pace. After a protracted period of decline, construction activity has lately remained level. Oil and gas drilling activity is unchanged at low levels, in the wake of a falloff that commenced last year. Recent increases in beef prices have raised profits in the District's important cattle industry, but low soil moisture is an ongoing concern for both farmers and ranchers in much of the region.
District manufacturing continues to expand overall, but growth in orders appears to have slowed recently. Several firms said they had managed to keep growing by seeking out new geographic markets. The only serious weaknesses in manufacturing have been in energy extraction-related and construction-related manufacturing. Oilfield equipment sales have declined absolutely in recent months. Orders to construction-related manufacturers - including lumber and wood and stone, clay and glass producers - are weak in most of the District, but some Houston-area producers cite growth. Reports by electronics manufacturers vary a good deal, but sales have generally expanded somewhat in 1989, following a sluggish fourth quarter. Personal computer orders are said to be expanding strongly. Primary and fabricated metals industries continue to show some expansion, but last year's rapid growth in fabricated metals appears to have slowed. Demand for paper is still strong compared to year earlier, but some recent slippage in export markets has been cited. In the chemical industry, sales remain well above a year ago, but rates of increase have slowed. A number of chemical plant expansions are underway but, currently, capacity constraints remain a problem for some producers. Apparel industry orders are said to have increased markedly in 1989, and producers say they have been automating in order to compete against foreign firms.
Retail sales growth varies considerably among regions but, on average, it is accelerating. Sales in Austin, Houston, Dallas/Ft. Worth, San Antonio, and on the Mexican border are all expanding at an increased rate, after adjustment for seasonality. Sales in west Texas, however, are weak and show little evidence of growth. Much of the overall acceleration is in apparel sales. Retailers are optimistic about prospects for further growth in revenues in 1989. A number of respondents have lately expressed concern about proposed changes in rules covering workers' compensation, minimum wage, and employee benefits.
District auto sales have lately been mixed, but modest overall, with strong year-over-year January gains in Houston offsetting declines in Dallas/Ft. Worth. Cold February weather was said to have led to more widespread sales weakness in that month.
District construction contracting activity is weak, but it has lately remained essentially level. In 1988, a midyear surge subsequently reversed course, and dollar values of contract issuance remain below a year earlier. Construction employment is still slipping, in response to past reductions in contracting. Recent declines in nonresidential building and nonbuilding construction have been largely offset by growth in residential activity, which is now above year-earlier levels. The upturn in residential building is chiefly due to single-family home construction. Multifamily residential construction has changed little and remains at very low levels.
After a protracted period of decline, District oil and gas drilling activity has begun to level off. The rotary rig count remains near its lowest level of the decade, but the large monthly declines that characterized the second half of 1988 have at least temporarily ceased. The leading indicators of drilling, including well permits issued and the seismic crew count, also appear to be stabilizing. According to some respondents, the recent leveling off of drilling activity is a result of persistent relative strength in oil prices. This strength has caused drillers to revise expectations about future oil prices. West Texas Intermediate oil prices have remained above $16 per barrel for each of the last three months, after averaging under $16 in every month from July through November. A seasonal decline of about $1 per barrel is expected this summer, but It is not anticipated to change drilling activity.
Despite recent rains in some areas, the chief current concern in District agriculture is continued low soil moisture. Although dryness is still said to be a problem in South Texas, February rains improved soil conditions there. In the Texas panhandle, however, drought conditions have been worsening and the winter wheat crop has already been damaged as a result of scarce rainfall. On average, both crop and livestock prices received by Texas farmers remain well above a year earlier, and prices of both crops and livestock rose in January over December's levels. The overall increase was 1.9 percent, compared to a 1.5 percent increase for the nation.