May 2, 1990
The District economy continues its pattern of slow growth. Expansion has accelerated slightly in manufacturing. Non-auto retail sales softened in March. Auto sales are generally below a year earlier, but not in all parts of the District. Expansion in the service sector has resulted in labor shortages in some professions. Construction contract values are showing renewed signs of weakness, but employment in the industry is expanding. Oil and gas drilling activity is strong. Recent rains and rising prices have improved the outlook for agriculture.
District manufacturing activity has picked up somewhat since the last Beige Book survey. Oilfield equipment manufacturers note some seasonal declines in sales, but they expect growth this year as a result of rising drilling activity. Orders to steel firms are a little below a year ago, but are up from six months ago, and selling prices are increasing slightly. A maker of extruded aluminum products cites strong sales growth and says that such reports are common in his industry. Orders to construction-related fabricated metals firms are also rising, but a can manufacturer notes that the agricultural damage due to Texas' December freeze has lowered demand for his products. In the wood industry, sales by flooring and millwork makers are sluggish while lumber and plywood sales have increased. Demand is essentially unchanged for most respondents in the stone, clay and glass industries. Among electronics producers, orders for telecommunications equipment are showing strong growth, but demand for most other products has not changed much. With a few exceptions, demand for food products has held fairly steady, but prices have increased on average. Paper producers note softening orders and say that pulp prices have fallen, in part, because of increases in the value of the dollar. In the apparel industry, demand has changed little in recent months, but is somewhat below last year's levels. Although demand for chemical products has increased in recent months, it is lower than a year ago. Oil refineries report stable demand, after seasonal adjustment, and several note increasing profit margins due to a widening spread between gasoline and crude oil prices.
Some District retailers said their sales were weak in March because Easter came late this year. Nevertheless, several national chains noted that year-over-year growth was slower in the District than in the nation. Among larger District cities, growth was strongest in Houston, and weakest in San Antonio. At the department stores, women's ready-to-wear sales were said to be fairly high, while sales of housewares were low.
Auto sales vary widely across the District, but they are generally weak. Auto sales are down markedly from a year earlier in Dallas and San Antonio but up in Houston, where sales so far in 1990 are 21 percent over the same period in 1989. Houston dealers say they do not expect such high growth rates to continue.
The services sector continues its pattern of expansion. Business services and health care firms cite recent acceleration in demand growth. Health care firms cite shortages of personnel and relatively strong increases in wages.
After a mild recovery during the second half of 1989, District construction contract values have weakened in recent months. Construction employment is increasing, however, due to earlier growth in contracts. Nonresidential contracts have been particularly weak this year, following a runup last year that was led by increased chemical plant construction. Residential building has declined slightly after mild improvement in the second half of last year. Conversely, after a weak second half, nonbuilding construction has recently been increasing. Multifamily permits continue to suggest growth in apartment construction. In both Dallas and Houston, apartment occupancy rates are above 90 percent and rents are increasing. Respondents in the Dallas area note a strong increase in single-family home sales, but prices remain sluggish and inventories have not declined much.
Like that of the nation, seasonally adjusted District oil and gas drilling continues to grow at a healthy pace. Year-over-year, the growth rate of drilling in the District is more than 50 percent higher than in the nation—partly because the new horizontal drilling technology is particularly applicable to the Austin chalk formations in Texas. Recently, however, drilling activity has begun to grow faster in the United States than in the District. Despite declines in oil prices within the last month, respondents say that prices remain high enough to motivate further growth in drilling.
Agricultural conditions are improving, as frequent rain in February and March provided necessary moisture across the District, and prices received by Texas farmers and ranchers continue to rise to new record levels. The rain has markedly increased soil moisture in drought-damaged south Texas. Rain in the Texas panhandle has led to more optimistic expectations about yields for the winter wheat crop there. The March index of prices received by Texas farmers rose 5 percent above a year earlier, to reach its highest level ever.
A survey of business borrowers finds that credit is tight in the District but that this is not a new development. Recent credit restrictiveness has primarily affected building contractors and some of their suppliers. As a result of new restrictions on loan size, tougher loan standards, and larger and more liquid collateral requirements, speculative home building is said to be curtailed in some portions of the District. Large businesses, including large home builders, had few complaints about credit shortages. Many smaller businesses say their long-established relationships with their banks have allowed them to avoid funding problems.