May 5, 1993
The District economy is growing slowly. The service sector continues to expand at a modest pace but manufacturing activity has weakened since the last survey. Most respondents say that selling prices are not rising. A few respondents indicate that input costs have risen slightly but they are not passing on these rising costs. New single- family construction and sales continue to dominate the District real estate market. Higher oil and natural gas prices are stimulating a slight pick-up in the District energy industry. Retail sales growth is moderate. District financial institutions report continued slow loan growth. Adverse weather conditions are negatively affecting agricultural production.
Manufacturing activity has weakened. Demand for fabricated metals has declined recently while primary metal sales have been sluggish. Respondents suggest that weak demand is a result of general caution surrounding the economy, along with low levels of nonresidential construction and oil and gas drilling. Primary metal respondents also suggest that caution surrounding the proposed energy tax has depressed growth. Steel producers believe their business has slowed because customers stocked up prior to an announced price increase. Slow domestic drilling also is reported to have weakened demand for oil field equipment although international demand has increased, particularly from Canada. Chemical producers indicate that sales are unchanged although a global surplus of chemicals and plastics are holding prices and profits low. Petrochemical prices have declined slightly despite sharp increases in several feedstocks, especially propane. Overcapacity problems and diminished exports continue to hurt domestic operations. Growth in apparel sales are reported to have slowed. Electrical and electronic machinery producers report that sales continue to be strong but prices remain flat despite a slight increase in cost. A paper producer reports weak export demand. Sales growth of lumber and wood products has leveled off but remains well above last year. Increased homebuilding construction continues to boost demand for stone, shell, clay and glass.
New single-family construction and sales continue to dominate the District real estate market. Inventories of new homes remain low in San Antonio, Austin, Dallas and Houston. Low inventories, along with higher prices for lumber and hardboard siding, have raised home prices. Respondents report little resistance to rising prices, mostly because low interest rates are offsetting rising prices. Apartment occupancy rates and rents have risen although there is little construction activity. Office markets remain weak particularly in Dallas and Houston. Construction to rebuild from Hurricane Andrew continues in Louisiana and off the Gulf Coast. Offshore construction of oil and gas platforms is expected to continue into the summer.
Higher oil and natural gas prices have stimulated the District energy industry. Reduced OPEC production has boosted the price of West Texas Intermediate Crude to around $20 per barrel. The East Coast blizzard increased demand for natural gas, unexpectedly draining storage facilities and raising prices. Storage levels, which are at a five year low, are expected to keep natural gas prices high for several months. Offshore natural gas drilling has increased. Domestic drilling remains seasonally slow but is expected to pick up soon, particularly for natural gas. Higher gasoline prices helped boost refining margins from the very low levels experienced in February but profits are reported to still remain weak.
Service sector activity continues to increase slowly. Business service and transportation respondents report that sales have increased. Temporary employment firms report that business has been particularly strong, partly because many companies are still hesitant about hiring permanent workers. Selling prices remain very competitive in the service sector. Several respondents noted that they must do more work with the same number of people because they can not increase prices. Higher labor costs such as health insurance, unemployment insurance, and workers' compensation continue to be a problem for many companies.
Retail sales growth is moderate. Sales growth is expected to continue. Some retailers, however, express caution that near-term growth may slow slightly because reduced federal income tax withholding increased the amount of taxes many consumers owe now. Respondents report that selling prices remain very competitive despite some higher costs. Auto sales have picked up and dealers are optimistic that sales gains will continue. Dealers report that domestic vehicles are outselling imports because of price increases for many foreign vehicles.
District financial institutions report continued slow loan growth. Loan demand has increased modestly but remains low. Bankers say that loan customers are being cautious about the business outlook. Regulatory burdens are also reported to be slowing loan growth.
Adverse weather conditions are negatively affecting agricultural production. Severe wet weather has delayed planting in central Texas. Planting is now 20 percent behind the five year average. Dry weather has aided wildfires, and depleted range and pasture conditions in far West Texas. March prices for most crops were lower than last year, while prices for most livestock commodities increased. The Texas All Crops Price Index dropped 17.1 percent from a year ago. The Livestock Index rose 5.0 percent above the previous year.