January 23, 1991
Output in the District has been flat to slightly down. The manufacturing sector continues to decline while growth in the service sector has slowed. Retailers report weak holiday sales. Auto sales have improved. Construction activity has increased moderately. Oil production has risen due to increased production from existing wells and new drilling. Local government revenues are decreasing while demand for government services is increasing. The crop harvest increased this year, but production costs hurt profit margins.
Manufacturing orders continue to be weak although there is little evidence of any sharp decline. Inventories remain lean. Many respondents say that their export orders continue to be healthy while domestic orders have declined. Many respondents expect a rebound in orders in the second half of this year. Orders to chemical producers have recently declined, after a surge following the Kuwait invasion. Continued high production of chemicals has built inventories to desired levels and firms are now reducing output in response to the declining demand. Petroleum refiners also note declining orders and production. District manufacturers tied to the construction sector (stone, clay and glass, lumber and wood products, and fabricated metals) say that orders from outside the District have declined sharply, but District orders are unchanged or growing. Many respondents feel that much of the recent weakness in construction is weather-related. Although orders for apparel products is flat, sales of lower priced basic lines have increased. Producers of electronics say that orders generally have been flat, although one producer of communication electronics says that sales of several new products have been robust. Orders for primary metal producers are declining. Most respondents in the paper industry say sales have been flat. Sales of oil field equipment continue to increase and many manufacturers are adding capacity.
Growth in the service sector has weakened since the last survey. Demand is strong at agencies which supply temporary workers. Law firms note that overall demand has been flat. Declining business conditions have slowed demand growth for consulting firms. Accounting firms note some increased demand for cost-saving services such as tax advice and internal audits. Airline industry respondents note a slight pick up in traffic due to price discounting.
Retail sales ire slightly above last year although retailers indicate that holiday sales were disappointing. District sales are modestly outperforming the nation's, particularly in Houston. Increased competition is generating heavy price discounting which has squeezed margins. Some retailers indicate that inventories are above desired levels.
District auto sales have increased. Dallas-Fort Worth area auto sales were flat in November, holding year-to-date sales at last year's level. Houston area sales were strong in November. Houston is now expecting to end 1990 with a modest increase in year over year sales.
Energy extraction has increased in the past several months. Higher oil prices have increased both drilling for oil and production from existing wells. Large supplies of natural gas and unseasonably warm weather, however, have suppressed natural gas prices. Respondents say that current conditions in the natural gas market have caused declines in drilling for gas. The long-term outlook for gas has improved, however, and respondents say that drilling for gas should improve this year. Projections for growth in the rig count in 1991 vary from zero to a 15 percent increase.
Construction has increased modestly in recent months with much of the activity centered in Houston and South Texas. Highway construction has recently increased but builders expect future declines in Texas as federal and state funding shrinks. Despite recent increases in residential construction, respondents generally have become more negative about the outlook. District residential builders note that decreased lending by banks and the national housing recession are major obstacles to significant growth in their industry.
Local governments say revenues are declining due to lower sales tax collections. Increased demands for health care, law enforcement and improved waste water treatment facilities are straining already tight budgets. As a cost-cutting measure, several local governments have begun efforts to contract out services such as sanitation and cleaning.
The District agricultural harvest is virtually complete. Some crops were lightly damaged by freezing temperatures in December. The December livestock and livestock products index increased 8 percent from a year ago and 2 percent from November. Texas producers are averaging higher prices for beef cattle and calves. December crop prices were 2 percent below a year ago and 1 percent below November. Lower prices for corn, cottonseed and wheat offset higher prices for cotton, all hay, peanuts, sorghum and soybeans.