January 22, 1992
Economic activity has been flat or slightly down. Heavy competition has reduced selling prices and profits in several sectors. Manufacturing activity has been stagnant and may be declining. Retail sales improved in December. Overall Christmas sales were equal to or slightly higher than last year's level. Retail respondents report higher than desired inventories. Many respondents conclude that consumers are concerned about the economy because of announced and anticipated layoffs. Most respondents do not expect activity to increase until the second quarter of 1992 or later.
Retail sales improved in December. Overall Christmas sales were equal to or slightly above last year's level. Retailers report much stronger sales at discount stores than at non discount stores. Most respondents note higher than desired inventories, particularly in apparel. Selling prices have been very competitive, and some respondents have reduced profits to decrease inventory. Automotive sales remain slow.
District manufacturing activity has been stagnant and may be declining. Apparel production has slowed but remains above last year's level. Chemical production has been flat, with some weakness in the demand for plastics. Chemical producers are concerned about overcapacity and do not expect orders to rise until the third quarter of 1992. Domestic demand for oil field machinery has been stagnant despite an expected seasonal increase. Prices have fallen. Growth of international demand has slowed but remains positive. Prices have also fallen as demand declined for petroleum refining and electrical and electronic machinery. Overcapacity in the supply of primary metals has reduced prices and cut profits in that sector. Demand for fabricated metals is well below last year's level. One exception is the producers serving the petrochemical industry, who experienced a pick-up in demand for equipment that helps meet the standards of the Clean Air Act. Production of paper products remains slow but above last year's level. Some paper producers report higher than desired inventories. Environmental concerns continue to restrict the supply and boost prices for lumber and wood products. Producers are optimistic that lower interest rates will increase demand soon. Recent wet weather has helped depress the demand for cement, except along the Texas-Mexico border, where demand remains strong. Cement producers express optimism about the prospects for a substantial increase in demand-primarily from an increase in federal funding for highways.
District construction activity is up slightly but shows signs of a slowdown. Construction of single-family housing has increased modestly, but a drop in housing permits probably indicates that growth may be negative. Although respondents report tight credit conditions are moderating growth, apartment activity has been strong. Industrial and office real estate demand is flat. Non- building construction has increased moderately, and respondents expect an increase in federal funding will boost highway construction.
Demand for District services has not increased and may have softened slightly. Heavy competition has decreased selling prices, except for airfares, where bankruptcies in the industry have reduced competition. Some service respondents noted rising costs and reduced profits. Accounting services report an increase in demand far bankruptcy and corporate financial services.
Low oil and gas prices are creating a somber 1992 outlook for the energy sector. High OPEC production and expectations of Iraq and Kuwait's reentry into the oil market have lowered oil prices. After hovering around a $20-per-barrel average in 1990, the price of oil dropped to $17.50 in mid-January. Natural gas prices reached 14-year lows during the summer, and warm weather in the fourth quarter has not spurred much of a price increase. The average wellhead price of natural gas in 1991 was 15 percent below that of 1990. Current low prices and prospects of further declines in the second quarter have reduced exploration and production activity in the nation and the District. Some oil and gas producers are shifting their exploration activities overseas. Many energy and related companies have announced layoffs.
District commercial loan demand is reported to be steady or declining slightly. Banks report excess liquidity and indicate that they are having trouble finding quality credits. Activity has increased for refinancings and first mortgages.
Severe weather has damaged agricultural production and reduced farm and livestock income projections. Livestock prices are below last year's level. Crop prices are mixed with higher prices for corn, grain sorghum and wheat but lower prices for cotton, cottonseed, hay, peanuts and soybeans.