November 4, 1992
The District economy continues its slow expansion. Although there is wide variation across industries, orders to the manufacturing sector are increasing slightly. Service sector sales growth is light, but persistent, while retail sales have begun to accelerate. Auto dealers report that demand remains above a year earlier but that sales have recently leveled off. Construction activity is sluggish and banking conditions remain weak. Higher natural gas prices have motivated increased drilling activity. Cool weather has impaired growth of late-planted crops, while agricultural prices are up 3 percent from a year earlier.
Sales of manufactured products are up slightly, with most of the strength in durable goods and most of the weakness in nondurables. Among durable goods, demand growth is highest for fabricated metals and electrical and electronic machinery. Respondents are optimistic about future sales growth and some producers of electronic and electrical machinery say they are increasing capacity. Growth in homebuilding continues to boost orders for brick, cement, and lumber and wood products. Prices for these products are moving up. In contrast, demand for primary metals has declined slightly since the last Beige Book survey and is now well below a year earlier. Some glass producers report that their orders are falling because of slipping automobile production. Among nondurable goods producers, demand for chemicals is unchanged while sales of refined petroleum products remains below a year earlier. Respondents expect further consolidation in the refining industry. Demand for paper and boxes remains unchanged since the last Beige Book survey, although box sales are up from last year's levels. Pulp prices have fallen significantly in recent months and some respondents anticipate temporary layoffs. Although orders for apparel are above a year earlier, demand growth has recently slowed. In the food and kindred products industry, sales remain stable.
Service sector sales continue to increase slowly. While respondents are cautiously optimistic, employment expansion remains slower than last year. Selling prices have shown little recent change, but several surveyed firms plan to attempt price increases early next year. In the Houston area, weakness in industries that purchase business services have lowered demand to that industry.
Retail sales growth has accelerated overall and respondents are increasingly optimistic that expansion will continue. Several companies surveyed noted that District retailing remains very competitive and they mentioned that they are looking hard for ways to reduce costs. Selling prices are said to be stable. Automobile sales remain above a year earlier although demand growth has recently softened.
Overall, District construction activity is sluggish. New single- family homebuilding continues to provide the only source of strength. Some respondents express concern that the homebuilding expansion will not last much longer. Apartment construction remains slow. Highway construction has dropped off recently and the outlook for future highway funding is said to be very uncertain.
After considerable weakness earlier in the year, District rotary rig activity has risen more rapidly than its usual seasonal uptick, and it now remains essentially unchanged from a year ago. Increased rotary rig activity has been spurred by rising natural gas prices, which are now at a seven-year high. Firms say that gas prices are up for three reasons: (1) Hurricane Andrew has caused production curtailments. (2) Purchasers are attempting to replenish below- normal storage volumes. (3) Anticipations of severe weather this winter have motivated additional heavy buying. In contrast to natural gas prices, oil prices have remained relatively stable at around $21 per barrel.
District banking conditions remain weak. Loan demand has softened although it is said to be stronger than a year earlier. Bankers attribute this softness to business borrower caution about the near- term economic outlook. Bankers expect loan demand to rise slowly.
Agricultural conditions have worsened slightly. Unexpectedly cool weather has slowed the growth of some late crops and, as a result, agricultural officials have slightly reduced their production estimates. District agricultural prices are unchanged from a month ago but prices are up 3 percent over a year earlier. Price increases over the last year are the result of upturns in livestock prices, which rose 4 percent. Crop prices declined by 1 percent.