December 8, 1993
The District economy expanded at a moderate pace in October and November. Manufacturing respondents said that orders and output increased at a steady rate. Retail sales increased slowly. Business service companies reported a moderate increase in demand, and particular strength was noted by temporary employment agencies. Commercial loan demand was reported to be flat at district banks. Oil and gas prices and drilling activity declined. Agricultural producers reported a generally good harvest, an increase in crop prices and lower livestock prices.
Most District manufacturers reported steady growth in orders and output. Many respondents noted that the passage of NAFTA had improved their outlook for next year. Construction-related manufacturing respondents reported continued strong orders. Primary metal manufacturers said that demand was flat to slightly improved. Semiconductor manufacturers said that demand decelerated but that the reduction in growth from very high rates was expected. Respondents in the telecommunications industry reported continued strength in output and employment. Producers of corrugated box liners and fine and industrial grade paper noted an increase in demand. The petrochemical industry reported strong demand, although overcapacity problems continued to shrink profit margins for producers of ethylene and propylene. Oil field machinery companies reported continued revenue growth due to the expansion of drilling in the Gulf of Mexico. Employment and output at apparel industries were reported to be steady. Transportation equipment manufacturers who produce for the private sector reported some slight gains while those producing defense products reported continued declines.
Overall retail sales increased slowly in October and November. Responses were more mixed than usual with some retailers reporting far better sales than others. Retailing remains very competitive and price increases are rare. Even though some reported weak growth, all contacts were confident that sales growth would improve slowly. Auto sales increased in October, keeping year-to-date sales above last year's level.
All of the District banking respondents reported that commercial loan demand was flat. Most stated that their customers are being cautious or had a wait-and-see attitude about the economy before committing to additional borrowing. Most respondents did not expect a significant upswing in the coming months. Mortgage bankers report continued strength due to strong home building and refinancings.
Oil and natural gas prices and drilling declined. The price of crude oil fell below $16 per barrel in late November. From January to mid- November, West Texas Intermediate crude averaged only $18.94 per barrel, the lowest price in real terms since 1976. Respondents said that heavy exports from the North Sea and from the former Soviet Union have combined with slack global demand to put downward pressure on prices. Spot natural gas prices weakened in October and futures prices for November, December and January also weakened, As of mid-November, the seasonally-adjusted rig count had fallen 8 consecutive weeks.
Demand for business services increased moderately. Business activity at legal and accounting firms was up slightly. A number of respondents in these industries reported that they are increasing revenues through productivity improvements rather than fee increases. Hiring is flat to slightly up. Temporary employment agencies reported that demand had improved and that they had increased their hiring of workers. A temporary employment firm in Dallas reported that a rise in demand for temporary workers was broad-based across industries. Transportation firms report an increase in cargo shipments. Hotels reported stable demand.
Home construction remained healthy and inventories remained tight. Home building respondents were optimistic about 1994. Austin and San Antonio were still booming, Dallas was strong and Houston remained weak. Respondents in Austin and San Antonio continued to express concern over a shortage of qualified construction laborers and sales people. Commercial market respondents noted a pickup in retail building. Austin was reported as one of the hottest multi-family markets in the country with reported occupancy rates at 98 percent.
Agricultural producers reported generally favorable conditions, with most crops harvested before the Thanksgiving storm. Some producers expressed concern that the freeze would negatively affect livestock. Prior to the storm, livestock were reported to be in fair to good condition across the state. Texas corn production in 1993 is expected to reach a record high, an increase of 8 percent above last year's level. Cotton yields were reported to be good but lower planted acreage reduced production. Texas 1993 cotton production is expected to be 59 percent of last year's level. Lower prices for wheat, beef cattle and milk caused the October Texas All Farm Products Index of Prices Received to decline 1 percent from a year ago. The All Crops Price Index was 4 percent higher than a year ago while the Livestock and Livestock Products index decreased 3 percent.