March 13, 1991
While output in the District remains sluggish, there is little evidence of recession. In recent months, however, the national downturn has affected manufacturing industries in the District, causing a moderate decline in overall manufacturing output. The service sector continues to grow mildly. Despite falling oil prices, the energy industry is growing strongly. Construction continues to grow moderately. Retail sales are generally down. Auto sales have recently increased. Agricultural conditions have improved. State governments continue to struggle with revenue shortfalls and increased demand for services.
Manufacturing output has declined moderately since the last survey. Weakness in the national economy has reduced orders for primary metals, paper, chemicals, refining and construction-related materials. Despite these decreases, most respondents say that inventories are at desired levels. Producers of primary metals note a significant reduction in domestic orders, although gains in exports have partially offset these declines. Paper producers say that orders for corrugated boxes and printing paper have fallen noticeably. Orders for chemicals have edged down from high levels. Although prices for refined products have fallen, producers say that demand has continued to slide due to the gasoline tax and to high inventories held by customers. Lumber and wood producers generally note continued sales declines. Stone, clay and glass producers say that construction declines in the Northeast and West Coast have reduced their orders. While demand for concrete has declined, producers note that the imposition of import fees on Mexican concrete has increased District production. Orders to electronics firms continue to grow mildly. Oil field equipment production is growing strongly and producers expect demand to accelerate with the rebuilding of Kuwait. Apparel producers note slight but unexpected improvement in orders.
Overall, the service sector continues to grow, at a mild pace. Health care respondents say demand is growing strongly. Advertising firms say that orders have gone from increasing to flat due to the war in the Middle East. Petrochemical plant expansion has increased the orders for architectural and engineering firms and several firms expect strong increases from the rebuilding of Kuwait. Business consulting firms note flat overall sales. Law firms note some pick up in corporate demand, although their employment remains flat to slightly down. Temporary employment agencies report steady increases in demand. Hotel occupancy has been flat.
District energy respondents note that the current oil prices are consistent with supply and demand fundamentals. Despite falling oil prices, energy sector activity in the District is still strong. Oil and gas extraction and oil field service companies expect demand for their services to increase as Kuwait rebuilds its oil fields. Respondents in Texas say that outlays for production will be favored over exploration in 1991.
Construction activity continues to increase moderately. Single- family building has improved. One respondent notes that sales have increased in the last 30 days, after sluggish sales and starts since October 1990. Multifamily residential demand remains steady and rents and occupancy rates continue upward. The nonresidential construction sector recently has increased slightly, after bad weather and war uncertainties slowed demand in January. Several large commercial projects have begun in the Dallas area, and petrochemical plant construction is robust in the Houston area.
General merchandise stores report that retail sales have fallen on a year-over-year basis. Discount stores, however, continue to do well although competition is stiff. Respondents say that selling prices are not keeping pace with reported inflation rates. Retailers are keeping inventories small. Sales are expected to pick up after a resolution in the Middle East. Houston sales have weakened slightly but remain strong.
Auto sales picked up in February and dealers are optimistic about spring sales. In January, Dallas-Fort Worth area auto sales fell 20 percent from a year earlier. Sales of both domestic cars and imported autos dropped, but sales of transplants-Japanese cars built in North America-increased 25 percent. Houston area sales were up 5 percent in January.
Agricultural income prospects have improved because of surprisingly good cotton, rice and peanut harvests. Furthermore, beef prices are continuing to show strength. January crop prices, however, were 5 percent below a year ago. Lower prices for corn, cottonseed and wheat offset higher prices for cotton, hay, sorghum and soybeans. The 1991 winter wheat crop will likely decrease from last year. Producers have seeded 10 percent less acres--the smallest acreage planted since 1979.
State governments report increased fiscal pressures from slow revenue growth and few areas to cut spending. In Louisiana, two-thirds of the states budget is dedicated, and higher education and public health make up most of the other third. Texas faces a projected $4 billion budget shortfall. Revenues are projected to increase only two to three percent in New Mexico while the state is under pressure to hire more teachers and increase wages.