June 17, 1992
Economic activity in the District continues to expand at a mild pace. Manufacturing respondents report slight gains in orders. Service firms report a gradual, broad-based rise in orders. Construction and real estate firms say that conditions remain good, although activity has declined somewhat following a strong surge in the first quarter. Commercial construction remains at low levels. Retail respondents say that sales continue to grow slowly and that the outlook has improved. The oil and gas industry continues to decline. District banks report plenty of liquidity and a slight rise in loan demand. Agricultural conditions are mixed.
Most manufacturers report a slight increase in orders. Respondents in the primary and fabricated metals, and electric and electronic component industries report that weakness in other countries has suppressed demand for their products. Respondents in these industries say that overall orders are flat or slightly increased. Paper producers continue to see a generally slow improvement in orders, although the demand for containerboard and corrugated boxes has increased significantly. Construction-related industries generally report continued strength. Orders for cement and brick have been increasing strongly and selling prices are rising. Lumber and wood producers note a recent slight decline in orders due to reduced home construction in areas outside the District and weakness in commercial construction. Producers of oil field equipment report that orders are generally unchanged. Domestic demand for oil field equipment has flattened out at by levels while growth in international demand has slowed sharply. Chemical producers note some gradual rise in demand.
Respondents in the service sector report moderately improved activity. Business services respondents expressed increased optimism that demand from their clients will continue to grow moderately in the second half of 1992 and pickup further in 1993. Several business services respondents report an increase in banks' willingness to lend. Temporary employment agencies report gradual increases in demand coming from residential construction, mortgage finance and manufacturing companies. Respondents in the legal industry report a recent slight increase in business transactions activity. Several accounting firms note that activity began to improve during May. Advertising agencies report rising demand from small local companies.
Construction and real estate activity is mixed. Residential construction and sales have been stable in recent months following a surge in the first quarter. Home prices are reported to be increasing due to high lumber prices, steady home demand and low levels of new homes on the market. Multi-family construction is generally flat although respondents in Houston say that multifamily construction is increasing slightly due to increased bank lending. Multifamily occupancy and rents are stable in most markets. Industrial rents are flat and selling prices are reported to be up about 5 percent from last year in Dallas. Areas near the Mexico border are reporting an increase in the demand for commercial and industrial space.
District retailers report modest gains in sales and improved confidence that growth will continue. Inventories are generally at desired levels although a few retailers report that inventories are too high. Selling prices remain competitive. Mid-to upper-scale retail stores have recently seen more improvement than discount stores. Sales in the Houston area have been weaker than in the rest of the District. Auto sales remain slow.
Conditions in the oil and gas industry continue to be weak. The District drilling rig count declined in May and is currently near historical lows. Natural gas prices have risen in recent weeks due to a cold spring and low inventories. Respondents expect natural gas prices to fall over the next several months. Oil prices rose at the end of May but respondents say that the outlook for oil prices remains cautious.
District financial institutions report stable to slightly rising loan demand. In general, respondents were again upbeat about near- and long-term loan demand prospects. All respondents report plentiful liquidity. Several respondents note that they are increasing output per worker either through attrition or resisting new hiring.
Recent wet weather has replenished ground water, and improved agricultural conditions in many areas. Range and pasture conditions continue to provide excellent forage. Excessive rain has delayed planting and damaged the cotton crop in some areas. The peach crop is reported to be in very good condition although insect and disease problems have increased. The majority of commodity prices have declined from last year's averages, most significantly, cotton prices have fallen 44 percent since May 1991.