August 9, 1995
Eleventh District economic activity slowed to a moderate pace in June and July. Manufacturing orders were weaker for most products, and retail sales were reported to be very sluggish. Demand for business services increased slightly, however, and construction and real estate activity remained at high levels. Financial institutions reported higher residential real estate and consumer loan demand. Energy activity held steady despite a drop in oil and natural gas prices. Agricultural conditions have weakened.
Overall, there are few reports of price end wage pressures. Prices stopped falling for electronic products and were higher for some business services and agricultural products. Scattered wage pressure was reported in manufacturing, and service firms continued to have difficulty hiring skilled workers. Chemical prices leveled off after several months of increases, however, and recently announced price increases were rescinded. Some manufacturers said competition may bring price decreases in the near future. Retailers reported that real selling prices were below a year ago.
Orders weakened for most manufactured products, with the notable exception of telecommunications and semiconductor products where demand remained strong. Demand for paper products slowed slightly. Sales weakened for most construction-related products including lumber, fixtures and metals. A drop in sales to automotive and construction industries led to reduced demand for glass and inventory accumulation. Sales of primary metals weakened, and inventories were reported to be high, particularly for construction- related products. Demand wee up for fabricated metals, however, although lower costs led to a 3 to 4 percent decline in selling prices. Apparel sales were steady and contacts reported that input costs have continued to rise. Weaker domestic economic activity led to slower demand for petrochemicals. Inventories have rebounded from low levels to normal for most chemicals, but some companies now report that inventories are too high. Yet, chemical companies are proceeding with capital expansion plans along the Gulf Coast. Demand for most refined products remains strong, although oversupply has caused gasoline prices to fall faster than oil prices, putting refiners margins under substantial pressure. Profit margins at the pump have grown, however, because pump prices have been relatively stable while wholesale prices have fallen sharply. Demand for oil- field machinery held steady.
Demand for business services increased slightly, although demand for trucking and air cargo services was flat to slightly down. Temporary help firms continued to report the greatest strength, followed by legal and accounting firms. Hiring was unchanged at cargo service firms but increased slightly at temporary, legal and accounting firms. With the exception of temporary services, competitive pressures held wages and price, at the same level. Increased competition and slower demand for interstate and intrastate shipping, however, has put downward pressure on shipping rates.
Retail sales remained very sluggish in June and July. National retailers reported that Texas sales were significantly weaker then the rest of the country. Sales were said to be slow across the state, with continued poor performance at stores along the Texas- Mexico border. While costs remained stable, discounting had increased and contacts said real selling prices were below a year ago. Auto sales increased in June.
Financial institutions reported steady loan demand except for residential real estate and consumer loans which increased over the past three months. Business and consumer loan demand is expected to pick up slightly, particularly for auto and home improvement loans. Contacts reported that prospects for mergers and acquisitions are continuing, particularly for smaller banks.
Construction and real estate activity remained at high levels in June and July. Homebuilders reported a pick-up in new home sales and were more upbeat about the outlook for the rest of 1995. Contacts reported tight occupancy and strong demand for apartments, although construction is expected to slow from its current pace. Nonresidential construction was at high levels, mostly due to strong retail and industrial demand. Occupancy rates for industrial and office space continued to improve and rents remained steady.
Energy activity held steady despite a drop in oil and natural gas prices. Continued strong growth in international drilling stimulated revenues for service companies, although domestic drilling activity was 5 percent below a year ago. The normal seasonal increase in drilling activity has been concentrated almost entirely in gas and industry contacts report that domestic oil drilling is at the lowest level ever recorded. After falling by more than $2 in aid-June, oil prices have remained near $17 per barrel despite very strong demand for crude. Natural gas prices have consistently weakened throughout the summer despite strong demand from the recent heat wave.
Hot, dry weather, scattered insect infestations and reports of aflatoxin have weakened agricultural conditions and raised costs. The June Texas All Farm Products Index of Prices Received increased 1.1 percent above the May level. Higher prices for corn, potatoes, sorghum, wheat end most livestock offset lower prices for cotton and hay.