October 23, 1991
The District economy is growing very slowly and rates of expansion are uneven across the District. Many firms note that they are selling less than they expected and that they are unusually uncertain about the future. Service sector expansion is weak. Retail sales are below respondents' expectations and show only slight nominal growth from a year earlier. Auto sales remain anemic. Manufacturing output is expanding slowly. Although construction contract values are increasing, they remain at low levels. The oil and gas industry is in the doldrums as a result of low natural gas prices. Agricultural producers expect good yields. Some businesses report difficulties obtaining credit. Commercial banks say funds are available to lend, although credit standards have tightened from earlier this year.
Activity is strongest along the Mexico border where a strong peso is encouraging U.S. purchases. Growth in Houston has slowed but remains positive while activity in the Northern portion of the District may be contracting slightly.
The service sector is growing very slowly and respondents say that competition is intense. Temporary firms report an increase in demand for manufacturing-related employment but not for service-related temporaries. Accounting firms also note an increase in demand from manufacturing companies, although overall demand is flat. Activity in the advertising sector has increased slightly, but firms report a shift to cheaper direct-mail advertising. Demand for legal services is unchanged from a year earlier, although international demand is showing strength. Airlines report that heavy competition continues to hold down prices.
Retail sales growth remained weak in September. Sales were below expectations and several retailers have reduced their forecasts for the rest of the year. Several department store respondents note that weakness is widespread across their industry. Inventories have been reduced and prices remain very competitive. Children's merchandise has been selling well but sales of ladies' and men's apparel remains weak. Sales growth continues to be strong along the Mexican border, but the rate of expansion has slowed.
District auto sales are mixed. September unit sales increased in Houston, but year-to-date sales are still below last year. Dallas area auto sales continue to decline and are about 8 percent below last year's level.
Manufacturing output is growing slowly. Sales of electric and electrical machinery are up a little and producers report increased demand for memory components, microprocessors and programmable logic drivers. District apparel producers cite continued sales increases. Demand for lumber, wood and paper products has fallen recently. Glass sales have changed little in the last few months, but the demand for brick has increased. Chemical production has increased to rates of a year ago, but firms say that competition is high and that input costs are rising. Demand for primary metals continues to decrease and is now well below this time last year. While fabricated metals sales have moved up lately, the expansion is said to be seasonal; orders are still well below last year. Petroleum refining is unchanged. Low natural gas prices and expectations of reduced drilling are said to have pushed down orders of oil field machinery. For some larger producers, increases in international sales have partially offset domestic declines.
District construction contract values are increasing very slowly, and remain at low levels. Although residential construction values have picked up across the District, demand is below last year's level in Houston and in the Dallas/Ft. Worth area. Public construction continues to increase. Demand for commercial and industrial construction has been flat and remains at very low levels.
Oil prices have held steady around $21-$22 per barrel for the past eight months. Natural gas prices, however, plummeted to twelve-year lows in July, leaving the oil and gas industry in the doldrums. Although natural gas prices have increased slightly since July, drilling activity in the region has declined, with many oil companies concentrating their exploration and production activities abroad. District energy firms are announcing layoffs. Respondents expect the fourth quarter to show seasonal increases in oil and gas prices. In the long run, respondents are optimistic about natural gas prices, because of expected increases in demand as a result of the Clean Air Act and of increased exports to Mexico.
Although agricultural yields are expected to be good, recent wet weather has damaged some crops. Producers report higher prices for most crops and lower prices for most livestock commodities. Strong demand is helping to keep cotton prices relatively high and record volumes of cotton are expected to be harvested.
District commercial banks report that funds are available for lending. Loan demand, however, is reported to be weak. Some banks indicate that they have tightened their credit standards over the past year.