September 20, 1989
The District economy is growing slowly. Manufacturing expansion appears to have ebbed. Retail sales are increasing moderately, but more slowly than earlier in the year. Auto sales have dipped. Construction activity continues to show signs of a modest recovery. The oil and gas drilling upturn is still in place. Prices paid to District agriculturalists reached their highest August levels since 1980, but crop yields are down.
Orders to District manufacturers are showing slight growth, but there is great variation across industries. Although weakness in construction and automobile manufacturing have made stone, clay and glass sales sluggish, expansions in chemical plants are stimulating some demand increases along the Gulf Coast. Firms in the stone, clay and glass industry that supply construction are optimistic about rising demand in the coming months. Lumber and wood products firms say that sagging homebuilding activity has lately pushed down orders and they do not expect a recovery in the near future. Producers of primary metals generally cite slowing sales, slipping prices and increased foreign competition as recent problems. Nevertheless, orders for a variety of cast-metal products are picking up. Sales by fabricated metals producers have been expanding moderately. Demand for oilfield equipment has risen somewhat during 1989. Further increases are anticipated and some firms expect to increase their product prices later this year. The very recent patterns of demand for electronics varies widely among products but generally, orders have softened. Past shortages of D-Ram chips have ended, and demand and prices have dipped. In the computer industry, some upper-end products remain in strong demand, but lower-end personal computers are said to be selling poorly. Chemical firms report some slippage in sales and product prices, and they say that inventories are somewhat higher than desired. Sales at paper and allied products companies are stable but remain a little below a year earlier. For apparel firms, demand has remained fairly consistent in 1989, and sales remain above a year earlier.
Retail sales growth has slowed somewhat from earlier this year. Stores specializing in apparel cite strong year-over-year increases in sales, while some stores selling other merchandise had less positive reports. Recent expansion in retail sales appears to be strong in south Texas and the Houston area. West Texas sales are soft. Retailers are generally optimistic about the future, but they are cautious.
Auto sales are generally weak in the District, but moderate year- over-year expansion is reported for the Houston area. Dealers are not optimistic about sales growth for the next few months and some mentioned the likelihood of substantial rebates for the 1990 models.
The construction industry is maintaining a mild, but persistent recovery. Nonresidential construction has generated nearly all of the gains, and most nonresidential growth is in plant construction. The value of nonbuilding construction, which includes highways and water and sewer systems, has been declining. Residential building shows little change overall, but some expansion has recently occurred in New Mexico, At the same time, declines have taken place in Louisiana. Multifamily residential construction activity continues to be very weak in much of the District. Multifamily permits in New Mexico have been greater than those in Texas and Louisiana combined. The rate at which residential building permits are issued is essentially unchanged across the District.
The oil and gas industry continues to recover at a modest rate. After dipping in July, the District rig count increased again in August. Drilling in Texas posted year-over-year growth for the first time since June 1988, but drilling in Louisiana and New Mexico is still below year-earlier levels. The seismic crew count, considered to be a leading indicator of drilling activity, edged up slightly in July after four consecutive months of decline. Also in July, District oil and gas extraction employment grew strongly. The spot price of West Texas Intermediate crude oil increased in the first half of August and has since remained at nearly $19 per barrel. Employment in oil and gas extraction in the District grew strongly in July.
In August, District agricultural product prices rose to their highest level for an August since 1980—largely as the result of rising livestock prices. Overall, farm product prices were up 5 percent from a year earlier and 2 percent from July. Rising livestock prices were dominated by sharp increases in beef cattle prices. Hog, sheep, and broiler prices fell. Crop prices were 3 percent above a year earlier and were unchanged from July. Harvesting is well underway throughout the District, but production estimates for many crops are below last year's. Estimates for cotton and winter wheat are down particularly hard, but production of corn, hay, sorghum and soybeans is expected to increase. Moisture conditions have generally improved in the District, but central and south Texas remain dry.