Beige Book Report: Dallas
December 4, 1991
Economic activity in the District remains stagnant. Respondents report that a sluggish national economy and declines in the military equipment and energy industries continue to hold down economic growth. While construction growth has slowed, it remains positive. Business services are flat due to weak growth in new business formation and cost cutting measures by clients. Retailers say that sales are flat in October but improved slightly in early November. Agricultural conditions have worsened in recent months.
District manufacturing performance has been mixed, but generally orders appear to have increased slightly. Most manufacturers say that inventories are at desired levels and that they expect stronger growth in orders in 1992. Brick and lumber producers say that a moderate improvement in single family building has increased the demand for their products. Producers of electric and electronic equipment say that lower prices and the introduction of new products have increased their orders and market share. Petroleum refiners say that sales have been flat. Although respondents in the petrochemical industry say that orders are unchanged, recent plant completions in the District indicate that overall production has increased. Apparel producers note that sales growth has slowed but remains positive. Responses from the paper industry were mixed with sales declines reported for newsprint and increases reported for corrugated boxes. Orders for primary and fabricated metals have declined recently. Production and employment continue to shrink for defense-related manufacturers. The recently passed defense budget, however, should provide some stability to District defense contractors.
Demand for District services has shown little change since the last survey. Competition sad cost-conscious clients are putting downward pressure on service fees. Consulting and legal firms note continued weakness in the demand for services that typically stems from business expansion. Demand for controversy areas such as lawsuits, bankruptcy, and labor disputes remain strong. One consulting firm responded that an area of growth is advising clients how to streamline their business and downsize their work force to gain efficiency. Many respondents noted that an abundance of skilled workers is putting downward pressure on wages.
District construction growth has slowed but remains positive. Residential building continues to increase in Austin and San Antonio but has recently flattened in Dallas/Ft. Worth and Houston. New home inventories are lean in most areas of the District. Nonresidential construction continues to grow partly due to the expansions of refineries along the Gulf Coast, public school construction in Houston, and several public and corporate projects in Austin.
Retail sales improved slightly in early November although growth remained slow. Respondents say that store traffic is moderately high and that consumers are responding to discounts. Apparel sales have improved. Sales of big ticket items such as appliances remain weak. October auto sales declined four percent over last year in the Dallas/Ft. Worth area and rose four percent in Houston. Year-to-date auto sales are still well below last year in both areas.
The District energy sector continues to decline but several respondents say that drilling appears to be bottoming out. The seasonally-adjusted rig count in the District declined only slightly in the first half of November. One reason for the improvement in the rig count is that natural gas prices have increased moderately. In the second week of November the wellhead price of natural gas was only 7.5 percent lower than a year earlier. In July, the price of natural gas was about 24 percent lower than its year-earlier level. The outlook for natural gas prices has also improved in recent months. The futures price of natural gas to be delivered in the spring of 1992 has stabilized at about 17 percent higher than it was trading at this summer. Respondents report that sales of drilling rigs and equipment in the third quarter were the lowest in two years. The outlook for drilling equipment is bleak. Although the rig count is stabilizing, respondents say that the low number of rigs in use should reduce the demand for equipment throughout much of next year.
District commercial banks report that loan demand remains sluggish. Respondents say that they have plenty of liquidity but that they are having trouble finding good loans. Some respondents are expecting a modest increase in loan demand over the next six months.
Agricultural conditions have weakened in recent months. Respondents have reduced their income projections for this year. Much of the weakness is centered in recent declines in prices for livestock and cotton. A recent increase of cattle on feed reduces the likelihood that livestock prices will rebound this year.