May 6, 1992
District economic activity is increasing moderately. Growth has been broadbased with the exception of the energy extraction and agricultural sectors. In general, prices are stable and inventories are in line with expectations. Manufacturing activity has increased modestly. Single-family construction is accelerating, stimulating the demand for construction-related materials. Offsetting some of this strength, however, is continued weakness in the oil and gas industry. Declines in oil and gas drilling have reduced the demand for products such as oil field equipment and drill pipe. Service sector activity has increased and is becoming more broadbased. Retail sales have increased and many retailers report better than anticipated Easter sales. Non-residential construction remains weak. Financial industry respondents report a slight increase in loan demand. Agricultural conditions have deteriorated somewhat.
Manufacturing activity has increased modestly. Although there are some exceptions, generally selling prices have remained stable. Demand is strongest for construction related materials such as lumber and wood products, stone, shell, clay, glass and aluminum. Demand for paper, apparel and food and kindred products has also increased. Demand for electronic and electrical machinery has increased recently although respondents remain cautious that increases may not continue. Steel demand and prices have weakened because of reduced commercial and industrial construction and oil and gas activity. The depressed natural gas market continues to reduce the demand for oil field equipment. Domestic demand for oil field equipment is now significantly below last year's level. International demand is constant. Although international growth has ceased, respondents are optimistic about future sales. Production capacity for oil field machinery has decreased. Petroleum refining and petrochemical producers report little change in demand since last surveyed. Nonetheless, demand remains significantly below last year's level. Demand for pharmaceutical chemicals, however, has increased modestly. Chemical demand is expected to increase.
Demand for services has increased and is becoming more broadbased. Demand for legal and litigation support services remains strong. Transactions activity--such as real estate and those of the Resolution Trust Corporation--have been picking up some steam lately. Advertising has increased. Demand for transportation services has been flat recently, but remains above last year's level. Hotel occupancy has increased. Accounting, consulting and temporary firms report an increase in demand from companies trying to find new ways to increase productivity.
Retail sales growth has increased. Many retailers report better than expected Easter sales. Respondents are generally more confident that sales growth will continue, and a few retailers have increased their expectations for future sales. Sales growth continues to be strongest in the non-metropolitan areas, particularly along the Mexico border. Dallas-Fort Worth area sales growth remains weak. Retail selling prices remain stable and several retailers report they are obtaining some merchandise at a lower cost. Many retailers report they have reduced their cost of labor compared to last year. District auto sales have picked up significantly.
Homebuilding construction activity continues to increase. Single- family building permits have risen to their highest level in over a year. Home sales and property values have also increased. Apartment construction has increased but remains below last year's level. Commercial construction has improved slightly but remains at very low levels. Office construction remains weak.
Economic conditions in the energy sector have taken a turn for the worse. Oil and gas prices have been low, and could fall even further in the second quarter. The price of West Texas Intermediate is around $20 per barrel. Natural gas prices are about $1.40 per thousand cubic feet, recently getting a boost from the cold March weather. Our respondents do not expect natural gas prices to move up much. As a result, oil and gas drilling has deteriorated. The U.S. weekly rig count has fallen to a record low of 623 rigs in April.
Financial industry respondents report a slight increase in loan demand. Respondents continue to report they have plenty of liquidity. Mortgage refinancing and mortgage originations continue to increase.
District state governments continue to report fiscal problems and have instituted formal and informal hiring freezes.
Agricultural conditions have deteriorated slightly. Wet weather has restricted planting activity for some farmers and increased costs for some livestock producers. After peaking in late March, livestock prices have declined modestly. Overall, Texas crop prices remain unchanged from a year ago. Higher prices for corn, grain sorghum, soybeans and wheat offset lower prices for cotton and hay.