January 19, 1994
The Eleventh District economy expanded in December. Manufacturers reported growth in orders, particularly for construction-related goods and computer-related electronics. Energy-related manufacturing was boosted by strong international drilling and a strengthening domestic economy. Residential construction exceeded expectations while commercial construction increased across much of the District. Business service firms reported increased activity and retail sales continued to expand. Bankers reported a pick up in loan growth and optimism. Drilling continued to slow as real oil prices fell to 1973 levels. Dry weather weakened agricultural conditions across most of the District.
District manufacturers reported continued growth in orders. Demand for construction-related products and computer-related electronics remained strong while energy-related manufacturing increased. Demand for brick, glass and cement continued to be strong and contacts said they had increased their prices. Brick producers reported that they were hiring additional workers. Sales of lumber for residential construction was strong while lumber sales for industrial construction picked up. Lumber prices had increased. Primary and fabricated metal producers reported that sales were much higher than this time last year. Substantial international drilling boosted demand for oil services and machinery, while a strengthening domestic economy increased demand for refined products and petrochemicals. Lower oil prices reduced costs for these industries but continued overcapacity pushed prices and margins down. Sales of electrical and electronic machinery remained strong particularly for personal computers, communications equipment and construction- related equipment. Several electronics contacts reported recent hiring for new facilities. Demand for paper products was up slightly. Apparel manufacturing slowed but remained above a year ago. Sales of food and kindred products increased.
Business service firms reported increased activity. Demand was particularly strong for temporary services and contacts said they had increased their prices. All other service contacts, however, reported that heavy competition was forcing their prices to remain unchanged. Costs had held steady at most firms and some companies reported that they are getting ready to hire additional experienced workers.
Retail sales continued to expand. Retailers said that holiday sales met their expectations but were not outstanding. Sales of women's apparel was reported to be particularly slow, however. Heavy discounting kept prices at or below last year's level. Retailers said that consumers were very value oriented and merchandise was discounted earlier than last Christmas. As a result, stores were not left with excess inventory. A few retailers reported that they may have over-discounted because their inventories fell below desired levels. Auto dealers reported steady sales gains. A recent increase in the price of new cars had combined with a shortage of used vehicles to boost used car and truck prices.
Construction activity had increased. Single family homebuilding remained strong and contacts said that 1993 had exceeded expectations. Commercial construction expanded across much of the District, with strong demand for large discount retail stores and retail "power centers". Industrial construction also increased. Shortages of concrete, fiberglass insulation, and gypsum wallboard were reported to have slowed construction in some markets. Houston and Dallas office markets remained weak.
Drilling declined with lower oil and natural gas prices. The Baker- Hughes rig count for the United States ended 1993 at 814 working rigs, well below the 883 working rigs at the end of 1992, and below expected seasonal increases. Weak global demand and large supplies pushed down real oil prices to 1973 levels. Natural gas prices also fell, with the February futures contract below $2.00 per thousand cubic feet. Contacts said that they do not know whether current price levels will hold.
District bankers reported a pick up in loan growth and optimism. Lending for housing construction remained strong while contacts reported an increase in consumer and commercial loan demand. Demand for loans is reported to have increased mostly from established customers, with many companies using existing lines of credit, Bankers reported intense competition for consumer loans from retailers and captive finance companies. Most contacts said they are hoping to accommodate loan growth without additional hiring.
Dry weather had weakened agricultural conditions across most of the District. Contacts reported that insufficient moisture had damaged pastures, the winter wheat crop and contributed to a shortage of hay. Supplemental feeding of livestock was above normal and some producers had culled their herds earlier than usual. The Texas cattle on feed inventory continued to reach record high levels. Higher prices for all major crops more than offset declines in major livestock items causing the Texas All Farm Products Index of Prices Received to increase 3 percent above December 1992.