June 21, 1995
Economic activity remained fairly strong in May and June, but there were some further signs since the last survey that growth may be slowing. Manufacturing orders remained at high levels, but contacts in some manufacturing industries said demand had moderated recently. In addition, transportation contacts said cargo volume had fallen since the last Beige Book. Retailers reported a slight pickup in sales in late May, although sales were still weak at stores near the Texas-Mexico border. On a more positive note, demand for business services continued to increase, with no slowdown in sight. Contacts in the construction industry said that commercial construction continued to rise and that home sales had risen in May and June as mortgage rates declined. Bankers reported steady loan demand. Energy contacts said that drilling had improved in the Gulf of Mexico. Agricultural conditions are generally good, but drought continued to hamper agricultural production in some areas of the Eleventh District.
Price and wage pressures seem to have subsided in the last six weeks. The notable exception was in the semiconductor industry, where contacts said low supplies led to higher selling prices. Although some manufacturing contacts said that high prices for packaging had raised costs, manufacturers of paper and corrugated boxes said that selling prices had stopped rising. Manufacturers of construction-related products said prices had softened because of slower homebuilding in the first quarter. In the service-producing industries, retailers said that apparel discounting was widespread, and fees for business services were stable after rising earlier in the year. Crude oil prices were lower in May and June after moving above $20 per barrel in April, and natural gas prices were flat.
Eleventh District manufacturing demand remained at high levels, but there were some signs that growth may be slowing. Corrugated box and paper manufacturers said demand remains very high, but that orders had flattened in the past few months, which may signal a slowing in the growth of overall manufacturing shipments. Similarly, respondents in construction-related manufacturing industries said that while demand related to commercial construction remained strong, orders for lumber and cement had slowed as fewer homes were constructed in the first quarter of 1995. In addition, glass producers noted a decline in orders stemming from lower auto sales. Demand for electronic products continued to increase, however. Semiconductor manufacturers said that orders were rising strongly and that a lack of capacity was putting pressure on selling prices. Apparel sales were steady, and contacts expected demand to remain at current levels through the rest of the year because of slower growth in retail sales. Demand for food products was flat. Respondents in the petrochemicals industry said that demand had eased slightly, but that high prices were still providing very strong profits. A sharp increase in gasoline prices from April through May provided improved margins for refiners, after one of the worst quarters in the history of the refining business. Demand for oil field machinery remained flat despite a pickup in drilling in the Gulf of Mexico.
Respondents at business service firms, such as temporary employment agencies, accounting and consulting firms and legal firms, said demand continued to rise. Sources of increased demand included real estate transactions, mergers and acquisitions and high technology manufacturing. Hiring increased, and the outlook for the next several months was optimistic. Despite the strong demand, competition kept prices flat. Respondents in the transportation services industry said that a slowdown in economic activity and Mexico's peso crisis had caused demand to fall in the last six weeks. Nevertheless, some contacts said they were starting to see a slight pickup in shipments from Texas to Mexico.
Retailers reported a slight pickup in sales in late May, although sales continue to grow at a slower pace than last year. Selling prices were very competitive, with contacts reporting no change in price for most products and continued discounting for apparel. Sales remained weak at stores along the Mexican border. Auto sales remained flat in May and June, and were well below year-ago levels.
District banks reported steady loan demand. Construction loan demand remained strong, primarily because of warehouse and plant construction. Although demand for new residential mortgages was slightly weaker, refinancing was slightly stronger. Continued competition between banks and other lenders for business and commercial and industrial loans squeezed margins.
Construction activity remained strong. Rising demand for warehouse and retail space kept the level of nonresidential construction high. In addition, there were several reports of new office construction, something that has not been seen since the real estate bust of the mid-1980s. Homebuilders said that sales were up in May and June after declining in the first quarter, mostly a result of lower mortgage interest rates. Homebuilders have revised their outlooks upwards but still expect 1995 sales to be below 1994 levels.
Energy respondents said that drilling activity in the Gulf of Mexico had improved, with both the number of rigs under contract and the number of active rigs rising. After moving above $20 per barrel in April, crude oil prices fell to $18.69 on May 26th on news that a refinery strike in Brazil had ended. Crude prices have since rebounded to about S19 per barrel. Natural gas prices remained relatively flat.
Agricultural conditions were rated as mostly good, with the exception of the wheat crop which was rated as fair to poor. Drought continued to hamper production in South Texas, greatly reducing the amount of forage available to cattle. Dry conditions have also stressed crops, and irrigation is heavy although the lack of rainfall has led to pumping limits on the Edwards Aquifer. Texas farmers received higher prices for most crops in May, although livestock prices continued to decline and are now 14 percent below last year's level.