March 18, 1992
Economic activity in the District has improved slightly since the last survey. The improvement generally has been broad-based, with the exception of the energy extraction and agricultural sectors. Manufacturing and business service companies report a modest increase in demand. Retailers say that they are seeing visible signs of recovery. The strongest sector in the District is residential construction which has increased significantly. The improvement in residential building has boosted demand for construction-related products such as lumber, cement and brick. Continued weakness in oil and natural gas prices has reduced exploration and development and led to related declines in the production of oil field equipment and fabricated metals. Farm and ranch conditions have deteriorated in recent months due to above average rainfall and declines in livestock commodity prices.
Manufacturing activity has improved in recent months. A strong increase in residential construction has boosted orders for lumber, cement and brick. Producers of primary metals and electrical machinery note slight to moderate increases in orders. Orders for apparel have increased moderately to strongly. Respondents in the paper industry say that increased capacity in their industry has resulted in reduced orders for many producers of business paper. The demand for corrugated boxes remains stable. Refining and petrochemical producers say that orders are flat to slightly down. Declines in domestic oil and gas drilling have reduced the demand for oil field equipment. Fabricated metal producers who manufacture products for energy and commercial construction companies note recent declines in orders.
Demand for services has increased. Law firm respondents say that for the first time in many months they are experiencing a rise in the demand for services dealing with business formation and expansion. One legal respondent says that, in order to cut costs, companies are switching from out of state legal firms to local firms. Respondents in the accounting industry note that, aside from seasonal activity, demand is flat to slightly up. One accounting firm, however, has noticed a recent weakening in demand in Houston. Engineering firms report a modest increase in demand due to growth in housing developments and proposed highway projects. Respondents in advertising agencies and airlines say that business has improved.
Construction activity has picked up due to a significant rise in home building. New home sales generally have risen faster than home construction, so that new home inventories have fallen to very low levels. Single family home prices are rising in most markets. Infrastructure construction (roads, highways, sewer systems, etc.) has not changed, although the Highway Bill should cause highway construction to increase beginning in the third quarter. Commercial construction remains at low levels.
Oil and gas producers say that conditions continue to deteriorate and that 1992 will mark historic lows for domestic oil and gas drilling. As a result of low prices for oil and natural gas, exploration and production activity in the District continues to decline and respondents say that they are shifting more of their exploration activities overseas. Energy companies continue to cut domestic jobs and drilling budgets. While the rig count increased slightly in early March, it has declined over 36 percent since its recent peak in February 1991.
Most retailers say that sales have increased across a broad spectrum of products. While sales gains have been modest, retailers say that the pickup generally was not expected. Retailers continue to keep inventories lean. Sales have improved in most metropolitan areas. Sales growth is strong along the Mexican border. Auto sales have declined. Sales of imports and transplants have been particularly weak.
Financial industry respondents continue to report weak loan demand. Banks report that they are having trouble finding quality credits and that they have plenty of liquidity. Some respondents are expecting a modest increase in loan demand in the second quarter. Mortgage refinancing has been strong and mortgage originations have increased moderately.
Agricultural conditions have worsened in recent months. Livestock prices declined in January and are well below last year's averages. Large supplies of meat and poultry, high competition among meats, and a weak economy are putting downward pressure on livestock prices. Above normal rainfall is delaying planting of many crops such as corn and rice and may soon affect the planting of grain sorghum and cotton. Severe weather damaged a significant part of the cotton crop in the last quarter of 1991. Cotton prices have declined recently.