August 4, 1993
The District economy continued to expand slowly from early June through mid-July. Most manufacturing industries reported sluggish growth although industries tied to residential construction grew strongly. The service sector reported continued slow growth in sales and employment. Residential construction remained robust in most markets and highway construction improved. The District drilling rig count increased in response to continued strength in natural gas prices. Retail sales increased slowly throughout most of the District. Agricultural conditions improved slightly.
Most respondents in the manufacturing sector reported that orders were flat to slightly up. Respondents in the lumber and wood products, furniture and fixtures, and stone, clay and glass industries reported continued strong orders due to strength in the residential construction sector. Most manufacturing industries reported that inventories were either manageable or near desired levels and that capital spending remained weak. Respondents in the electrical and electronic equipment industry reported overall flat orders, although several respondents noted strength in orders tied to personal computer sales. Paper producers said that orders for most of their products have been flat. A producer of corrugated boxes noted a gradual rise in orders from manufacturers in Texas. One respondent noted an increase in exports of newsprint to Mexico. Oil field equipment producers reported weak demand, particularly from their international customers. Chemical producers said demand was weak from both the U.S. and European markets. Several industries that supply products to the health care sector reported declines in orders. High technology equipment and any disposable medical products are considered costly and respondents say that demand has been reduced in anticipation of the new health care plan.
Respondents in the service sector reported that employment and orders continue to grow at a slow pace. Respondents said that hiring in anticipation of growth is a thing of the past and that employment growth will only pick up after activity picks up. A respondent from the legal industry reported that a move by insurance companies to use more in-house lawyers has reduced demand at law firms. One health care respondent said that they are cutting patient costs, through procedures such as more outpatient surgery, in anticipation of health care reform.
District construction and real estate activity continued to increase primarily due to strength in residential and highway construction. Respondents said that office vacancy rates remained high in Dallas/Ft. Worth and Houston, and commercial construction remained weak. Office vacancy rates continued to decline in Austin. Highway construction continued to increase as a result of the 1991 transportation bill. New home demand was reported to be strong across most of Texas, but new home sales have recently weakened in Houston.
Retail sales increased slowly throughout most of the District. Several retailers reported that they lowered their selling prices to maintain market share and keep inventories from building up. A few respondents reported that they anticipate lowering prices because their inventories were larger than desired. Apparel sales were said to be particularly slow. Sales along the Mexican border continued to be below last year's level because Mexico increased enforcement of a $50 limit on goods brought back into Mexico by its residents. Auto sales were slightly above last year's level, with particularly strong sales in the San Antonio area.
The District oil and gas rig count has increased since April primarily due to continued strength in natural gas prices. Natural gas drilling in the Gulf of Mexico was reported to be strong. Oil prices fell sharply throughout the first three weeks of July. Respondents reported that a large surplus of oil on the world market and the possibility of oil sales from Iraq has driven down oil prices. The recent declines in oil prices have clouded a previously positive outlook for drilling during the second half of the year. Respondents still expect drilling to increase during the remainder of 1993 due to continued strength of natural gas prices and the availability of previously budgeted funds.
Loan demand at district financial institutions slowed in recent months. Lack of borrower capital and insufficient cash flow were the most cited reasons for rejecting loans. Home mortgage originations and refinancings remain a bright spot.
District farming and ranching conditions have improved slightly since the last survey. Most crops were in good condition and on schedule, although ranges and pastures were beginning to deteriorate from recent hot and dry conditions in most of the state. Cotton producers were optimistic about the potential for export expansion due to the smaller than anticipated yield of cotton in China. Crop prices were generally lower than last year while livestock prices were mostly higher.