August 7, 1996
The Eleventh District expansion moderated in late June and July after strong growth noted in previous surveys. Most respondents expect business conditions to remain at good levels for the rest of the year. Manufacturing orders were softer, as construction-related orders slowed slightly and semiconductor orders remained weak. Increased drilling activity boosted orders for energy-related equipment. Retailers reported slower sales and noted reduced traffic at stores. Loan demand was mixed, as refinancings continued falling, new residential loans held steady, and loans for commercial construction and consumers picked up. Although construction activity held steady over the past six weeks, contacts in the residential sector expected slower housing construction in coming months. Nonetheless, contacts said higher demand for office space reduced vacancies, especially in suburban markets. Record heat and drought continued to impede agricultural production.
Prices and Wages
There were scattered reports of price pressures over the past six
weeks. Contacts said prices were up for plastic products, some base
petrochemicals and lumber. In addition, several manufacturing
respondents said higher natural gas prices had boosted their costs.
Crude oil prices were down from the last survey, but remained above
$20 per barrel according to contacts. Despite low cattle prices, the
June Texas All Farm Products Index of Prices rose 2.9 percent above
the May level, pushed up by higher prices for hogs, broilers, eggs,
milk and all crops except potatoes. Prices were reported as falling
for steel, paper, some apparel products, semiconductors and
computers. There were few reports of wage pressures, although
contacts in some industries continued reporting difficulty finding
qualified, entry-level workers. A few manufacturing respondents were
concerned about the possibility of a minimum wage increase, but
retailers said they would not be significantly affected.
Manufacturing
Manufacturing orders softened over the past six weeks despite
stronger demand for most energy-related products. Semiconductor
orders continued to fall, and contacts were more pessimistic about
the outlook for the industry. Most respondents hoped the decline in
orders would bottom out by year-end. Respondents in the computer
industry reported flat demand overall, although firms that make
"build-to-order" products reported stronger sales than the industry
average. Many construction-related manufacturers reported somewhat
softer demand in the past six weeks following extremely strong
growth in orders earlier in the year. After reporting shortages in
the last Beige Book survey, cement contacts said demand had softened
in the last six weeks, allowing them to take customers off of
allocation. Brick producers said plants continued to run at capacity
and inventories were low, but demand had slowed slightly in July.
Lumber producers reported steady demand and low inventories. Apparel
manufacturers reported flat demand after a noted improvement in the
last Beige Book. In energy-related sectors demand was strong for
most products. Petrochemical producers said that demand was solid
overall and profits were improving, but that demand for plastic
products (such as polyethylene and polypropylene) was especially
strong with low inventories and scattered shortages. Oil field
machinery companies reported that increased drilling activity had
boosted demand. Gulf Coast refiners said weaker gasoline prices
combined with high prices for crude oil were reducing profits,
however.
Retail and Auto Sales
Retail sales slowed in June and July, particularly for apparel.
Retailers noted that traffic at stores was down. Inventories were in
line with expectations, and there was no mention of price pressure.
Contacts remained optimistic that sales would pick up in the fall.
Auto sales softened in June and July, but inventories remained on
the light side according to respondents.
Financial Services
Contacts in the financial services industry reported mixed loan
demand over the last six weeks. Refinancings continued to decline as
long-term interest rates remained at high levels. Other residential
real estate loans reportedly held steady. Consumer loan demand was
up for some contacts in Dallas/Fort Worth and Austin. In addition,
respondents reported higher demand for commercial construction
loans, fueled by plans for speculative office and warehouse
construction.
Construction and Real Estate
Construction and real estate activity held steady in late June and
July. Home construction remained at high levels, but contacts expect
activity to cool in coming months because of higher financing costs
and lower buyer traffic. Respondents said strong demand for
industrial space continues to buoy nonresidential construction.
While there are minimal office projects in the works, contacts
reported tighter office occupancy and rising rents, especially in
suburban markets.
Energy
The energy market strengthened since the last Beige Book report, and
crude oil and natural gas prices were at relatively high levels.
Domestic drilling activity increased, with virtually all of the
increase in drilling attributable to rigs looking for natural gas.
Offshore activity remains strong in the Gulf of Mexico with every
available rig under contract. According to contacts, a number of
projects are underway to build new rigs or to refurbish old ones.
Agriculture
Drought continues to stress agricultural conditions, according to
contacts. In early July, rainfall reduced stress in some areas, but
record-breaking heat kept pastures and forages dry in many parts of
the Eleventh District. Numerous fields of failed corn and grain
sorghum continued to be cut as farmers and ranchers searched for
sources of hay to feed livestock.