Beige Book Report: Dallas
May 3, 1989
The District economy is growing modestly, but persistently. Manufacturing sales are increasing at a slow pace. Retail sales growth generally is moderate to strong, while auto dealers say their recent sales have been about the same as last year's. Construction activity is slipping a little. The oil and gas drilling upturn that began in February continues unabated. In agriculture, the drought is becoming a more serious problem, but product prices are up.
District manufacturing is expanding overall. Growth has recently been slow and respondents are expressing increased uncertainty, but most are still optimistic. Sales by oilfield equipment producers have not generally risen, despite a recent upturn in oil and gas drilling activity. Respondents anticipate modest increases in demand as the energy industry continues its recovery. Although primary metals orders have changed little in recent months, sales are up over a year earlier. Fabricated metals producers say their recent increases in orders mostly reflect a seasonal pattern, but they express optimism about continued sales growth later in the year. Demand for electronics has picked up after some recent sluggishness, and manufacturers expect further growth in 1989, although at a slower rate than during the first half of 1988. A number of firms in this industry are planning significant increases in investment spending. Some electronics firms cite shortages of engineers and technical workers. Stone, clay and glass sales are generally sluggish, but it is widely believed in this industry that demand has reached its trough. Most lumber and wood manufacturers report no change in sales.
Apparel orders are up. Reports on paper sales are mixed, but those with growing sales express concern that their inventories are too low. Demand for District chemical and plastics products has lately been flat to down and producers say uncertainty over future demand patterns has increased. Most manufacturers still report little or no upward wage pressure, but more of them are reporting pressures than in recent surveys. Many manufacturers, however, note that their employee health insurance and workman's compensation costs are rising significantly and one respondent cited these increases as a motivation for expanded offshore operations.
District retail sales growth ranges from moderate to strong. Rates of expansion have been particularly high in the cities on the Mexican border and in the eastern portions of the Texas gulf coast. Growth has also been brisk in Dallas. The pace of growth has slowed somewhat in Houston and San Antonio, where expansion was strong in 1988, but increases continue.
District auto sales are generally little changed from a year ago. Dealers expect future growth with the continuation of the District recovery and also because of current promotion programs.
Construction activity remains sluggish. Contract values overall are slipping a little, mostly as a result of weakness in nonbuilding construction. Although gains in residential building have lost some of the momentum they developed during 1988, this measure remains farther above its year-earlier level than at any time in the last 4 years. Permit issuance for multifamily residences is very low. Single family permits also have weakened somewhat but, unlike the multifamily side, are above their year-earlier levels. Nonresidential building activity has stabilized and is still showing year-over-year gains in contract values. Texas construction employment dropped sharply in February, following a large increase in January.
District oil and gas drilling has recently picked up. After declining from June 1988 until January of this year, the District rotary rig count increased slightly in February and was up strongly in March. Recently revised data reveal that oil consumption is stronger and inventories are weaker than previously estimated. The new estimates increase the likelihood that oil prices at or above $18 per barrel could be sustained throughout this year and into next. Respondents say that this should stimulate some growth in drilling although strong expansion is not expected.
Drought remains a serious threat to District agriculture as soil conditions continue to worsen in Texas and New Mexico. The winter wheat crop has been seriously damaged by insufficient moisture and by insects. In Texas, 85 percent of the crop is rated either fair or poor, and the damage is even greater in New Mexico. The drought has affected livestock operations also. Despite signs of nationwide herd rebuilding, cattle liquidation continues in the District, due to a lack of forage availability. While rainfall remains below normal levels, moisture has been sufficient for planting, but dry conditions have slowed seeding operations in the southern half of Texas. Because of the composition of its output, the District's agricultural prices are rising faster on average than nationally.