August 8, 1990
The District economy is growing slowly. Manufacturing has shown little recent change. Retail sales growth is outpacing the nation's, while auto sales are down from a year earlier. Expansion in services is slow to moderate. Residential building is generating a small upturn in construction. Oil and gas drilling has reached a plateau. In agriculture, low soil moisture is becoming an increasingly serious problem.
Even though manufacturing firms cite little overall change in orders, they are generally more optimistic then during the last survey. Most recently, oilfield equipment firms note very little growth in sales, but year-over-year expansion has been moderate to strong. Steel firms say their orders are rising, in part, because increasing foreign demand has reduced the domestic availability of imported steel. Orders for fabricated metals products vary greatly; a can manufacturer reports large sales increases, but construction- related fabricated metals firms say their orders are flat to down. Demand for lumber and wood products varies greatly by product and region. A raw lumber producer notes rising sales and, until the last month, rising prices. The upswing in lumber partly reflects an industry shakeout that has left larger market shares for the survivors, Among stone, clay and glass producers, cement firms say product prices are up but sales are flat or declining; brick makers cite rising sales due to recent growth in residential construction. Reports by electronic equipment producers vary greatly. Considerable weakness was seen in some semiconductor markets, but telecommunications firms mention that sales are growing. Apparel producers have seen little year-over-year expansion, but they say demand has picked up from earlier in the year. Paper producers cite slowing sales and declining prices. Food products firms note little recent change in orders beyond normal seasonal movements. Chemical firms report slight reductions in demand, but most respondents say sales remain very high nevertheless. District refineries say demand is high and rising.
District retail sales continue to outperform the nation's. Respondents cite particularly strong growth in the Houston area and along the Mexican border. Some say their Dallas sales have grown little from a year earlier. In apparel sales, women's clothing and shoes are said to be in particularly high demand, while sales of men's suits have been slow. In general, discount stores are showing stronger sales growth than traditional department stores.
District auto sales were down in June, despite dealer incentives. Both Dallas and Houston area new car sales were down from a year earlier. On average, for the first six months of 1990, Dallas/Ft. Worth sales are slightly below a year earlier while Houston sales are up by about 5 percent.
District service industries generally note slow to moderate recent growth, although some Houston area firms say demand has increased markedly there. Most business service firms say they face strong demand, but reports vary greatly by geographic area. Houston and Dallas business service firms cite growing sales and easing price competition. These changes are partially a result of mergers and shakeouts, In contrast, a San Antonio respondent cites soft demand and expects little if any growth over the next year. Although airlines say ridership is steady, some firms express concern over the possibility of widespread fare discounting later in the year.
District construction activity has grown slightly in recent months, due to an upturn in both single and multifamily residential building in Texas. District nonbuilding and nonresidential construction remain weak. Respondents note that while occupancy rates and rents in the commercial and industrial markets continue show improvement, any significant increase in construction is a long way off. Construction of petrochemical plants, however, continues at high rates.
The District energy sector has recently slowed somewhat. Although oil production has continued to increase, the number of rigs operating has slipped. Even so, the drilling rig count is 31 percent higher than a year earlier. Horizontal drilling in south Texas continues to boost production. In recent weeks, oil prices have increased, due to increased tensions in the Middle East and expectations that OPEC will reduce production. Nevertheless, respondents expect continued cheating by OPEC members to limit any price gains.
Dry weather continues to frustrate District farmers and ranchers. Corn, grain sorghum and cotton have been damaged and some farmers have abandoned their cotton crops. The index of prices received by Texas farmers and ranchers this year reached its highest June level ever, and was 6 percent above a year earlier, although it was down 1 percent from May. Higher prices for cotton, grain sorghum and potatoes pushed the June all-crops index up 4 percent over last year, while the livestock and livestock products price index was up 7 percent.