November 2, 1994
Economic activity accelerated in September and October, with stronger demand for manufactured products and business services. Contacts in several sectors reported higher prices, and there were scattered reports of hiring problems particularly in large metropolitan areas. Retail sales, construction and real estate activity increased modestly. Growth in the supply of bank credit continued to outpace demand, creating intense competition by banks for credit worthy borrowers. Energy activity accelerated but levels remained below a year ago. Bad weather hurt agricultural production.
Manufacturing orders accelerated with strong demand for electronics,
chemicals, paper products and packaging. Orders increased modestly
for energy-related and construction-related products. Several
producers raised selling prices, mostly in response to higher costs.
Sales of electronics were strong. Inventories were below desired
levels at some semiconductor companies, and capacity constraints
were limiting sales. Electronics prices were still falling but at a
slower rate. Sales of boxes, packaging and paper products were up
strongly, and several contacts said inventories were low. Input
costs were higher, particularly for new paper products as opposed to
recycled products, and selling prices had increased. Demand for
construction-related products such as concrete, glass and lumber was
up slightly. Automobile and parts manufacturers continued to report
strong demand. Metals producers said sales were unchanged, although
higher costs pushed up selling prices. Demand for apparel products
held steady, while contract garment finishing remained weak. Some
contacts said higher cotton prices raised costs, although only a
portion is being passed along to customers. Demand for food products
was stronger. One contact said new nutritional labeling caused
shortages of packaging materials and higher costs. Demand for oil
services and machinery picked up while chemical sales and prices
continued to rise, Capacity expansions are planned for ethylene and
other chemicals. Environmental work was slower because of
uncertainty regarding EPA rules.
Demand for gasoline has been strong
but several refineries reduced production because of falling prices.
Gasoline prices fell because refiners had to empty and clean
gasoline storage and transportation facilities before production
switches to reformulated fuel. Refiners expect distribution problems
and spot shortages while switching to reformulated products.
Demand for business services increased, with strong growth at temporary, transportation, accounting and consulting firms. Demand for litigation services was softer, but business legal activity was higher, particularly for regulation, real estate, mergers and acquisitions. Prices were rising at accounting, advertising and temporary service firms. Wages had increased at accounting and temporary service firms, and temporary and trucking firms reported difficulty hiring. Mergers and downsizing reduced employment at several hospitals, and price increases were slowing.
Retail sales were up modestly. Apparel stores continued to report very weak sales, although demand remained strong for hard lines such as computers, electronics and home improvement products. Overall, selling prices continued to fall, but at a slower rate, Automobile sales accelerated, and dealers said insufficient inventory of some models had limited sales.
Bankers reported that their willingness to supply credit continues to outpace demand, resulting in intense competition for borrowers. Lending rose at a 7 to 12 percent annual rate at most banks. Real estate lending was expanding, particularly at large banks, although residential mortgage activity remained weak. Mortgage bankers are reducing employment levels and looking for ways to increase productivity.
Construction and real estate activity continued to increase. Demand for commercial space was strong, particularly for retail and industrial. New homebuilding picked up but remained below the March peak. Office markets tightened, except in downtown Dallas and Houston. Apartment construction accelerated, and contacts were concerned about overbuilding. Labor shortages were reported for plumbers and electricians, and higher wages were pushing up costs. Rents were unchanged or up slightly for most types of real estate.
Energy activity picked up strongly, although levels were lower than last year. Oil demand was strong, and prices stayed between $17 and $18 per barrel despite political uncertainties in Iraq. On-shore drilling was about 3 percent below last year's levels, but drilling activity was strong in the Gulf of Mexico where the number of working rigs is at the highest level since 1990. Maintenance on existing oil wells was up substantially. Natural gas prices continued to be weak, with futures prices between $1.45 and $1.70 per Mcf since mid-September. Recently, prices have stayed in the middle of that range. Several natural gas producers shut in capacity to wait for better prices.
Bad weather hurt agricultural production. Dry weather stressed crops, and reduced production estimates for corn, sorghum and peanuts. The cotton harvest is better than expected, however. The September Texas All Farm Products Index of Prices Received was 3.2 percent lower than a year ago.