December 6, 1989
The District economy is showing little growth. Orders to District manufacturers are declining somewhat, growth in retail sales has begun to slow and auto sales are slipping. Expansion continues in the service sector. Contract construction values are rising modestly. Increases in oil and has drilling are strictly seasonal. The drought persists in some agricultural areas.
Sales patterns vary widely among District manufacturers, but, on balance, there has been a slight decline. Demand for oilfield equipment continues to increase. Sales of primary metals products have lately fallen in what one respondent noted as a "180 degree about face' from patterns of earlier in the year. In the fabricated metals industry, demand has slipped for construction-related products but has picked up for energy-related goods. Orders to lumber manufacturers are weakening in the wake of what one respondent referred to as a sales "bubble" in August and September. Sales of paperboard are also off. Stone, clay and glass firms report some recent increases in demand - chiefly in the Houston area and in south Texas. Orders to electronics-related industries are generally softening, and some major layoffs have recently been reported. Transportation equipment output and employment are growing due, in part, to expansion in defense-related aircraft production. Little change has recently occurred in orders to the food products industry. Apparel producers' sales are down slightly from earlier this year, but remain above a year earlier, and inventories are said to have crept up to undesired levels. Some chemical producers are reporting increases in their sales in the wake of a recent chemical plant explosion, but they expect some softening next year. Oil refiners note that sales of gasoline have fallen below a year earlier.
Retail sales growth had begun to slow on a year-over-year basis, with particularly weak sales of durable goods, but post-Thanksgiving reports suggested some acceleration in general merchandise buying. Some stores that concentrate in nondurables have reported that sales growth in the District slightly exceeds national rates.
District sales have declined for both domestic and imported cars and trucks. The recent reductions are said to have occurred, in large part, as a backlash to September's heavy end-of-model-year purchases that stemmed from special incentive programs.
The services industry continues to grow strongly. Service industry employment is growing significantly faster than overall employment. Business services firms, in particular, report strong sales growth. Of such firms, the highest rates of growth are being reported by computer and data processing services. Business services firms in general are very optimistic about expansion over the next year.
Construction activity remains far below the levels of the mid- eighties, but there are tentative signs of expansion. Industry spokespersons are cautiously optimistic about the future, but they also express a great deal of uncertainty. The value of construction contracts is edging up in District states, chiefly as a result of growth in residential activity and some erratic expansion in nonresidential building. Nonbuilding activity continues to show sluggish performance at best. Industry spokespersons are optimistic about some continued expansion in homebuilding. They also say that falling multifamily vacancy rates and firming rents in some large District cities suggests the continued modest expansion in apartment-building.
Although District oil and gas drilling activity is expanding, recent growth only reflects seasonal patterns. After seasonal adjustment, drilling activity has shown little change. Leading indicators of drilling, including well permits and the seismic crew count, also suggest little near-term expansion beyond normal seasonally-based growth. Industry spokespersons are nevertheless optimistic about expansion in 1990, following the usual first quarter dip, because of what they say is a growing perception that $20 oil is here to stay. Another source of optimism about growth in drilling activity is the new horizontal drilling technology, which is particularly applicable to formations that are common in certain portions of the District.
In agriculture, the principal problem is low soil moisture. Conditions are particularly serious in south Texas and along the Gulf coast. In Texas, drought damage this year is valued at $1.5 billion and more than half of the total damage is said to have occurred in south Texas. Cattlemen have reduced their herds and Texas red meat production in September was 15 percent below a year earlier. Northern portions of the District have been less severely affected by dryness, and winter wheat planting and the corn harvest are both occurring on schedule. Prices received by District farmers are 6 percent above a year earlier, paced by a 10-percent increase in crop prices. Livestock and livestock products prices are up 3 percent.