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HOUSTON BUSINESS BRIEFS Recession Not Evident In The H ouston Area A recession is not evident in the Houston area, according to the respondents of the August 1989 Houston Beige Book survey. The survey indicates businesses are not experiencing factors that w ould lead to an econom ic recession. Price levels are rising modestly, and inventories are not high. Several industries in the Houston area are experiencing growth which supports the non-recessionary view of the econom y. Particularly strong is the dem and for single-family hom es and apartm ent rentals, said respondents, and shortages of developed residential lots w ere also reported. Retail sales have b een good, especially in light of the H C on stru ction Industry Sales o f residential real estate are expanding sharply in the Houston area. Purchases of single-family hom es are up 40 percent from a year ago, and prices are edging up. Developers indicate Class A lots are in short supply, and som e builders have sold out their entire inventory Houston Branch heavy rains experienced recently, and retailers remain optimistic concerning the prospects for sales gains this fall. Capacity constraints continue to tem per growth in output for some industries. Production of aluminum, paper and petrochemicals has slow ed slightly in recent months but still remains at high levels, according to the survey. The only dents in business activity recently w ere weatherrelated. Heavy rains dam pened retail sales, and East Texas timberlands were flooded causing a tem porary shortage of logs. Logging operations have resumed, and this shortage is expected to be quickly resolved. Although a recession is not ex pected for the Houston area, inflationary pressures also remain in check. Production costs and wage rates continue to rise modestly in a num ber of industries, b ut capital investments in m ore efficient plants are helping to hold dow n increases in final product prices. The following is a brief overview of the August 1989 Houston Beige Book survey results expressing what Houston area business leaders believe lies ahead. The Houston Beige Book survey is conducted by the Houston Branch of the Federal Reserve Bank of Dallas. •> ousing leads Houston's growth. Purchases o f single-family homes are up 40 percent from a year ago, and prices are edging up. of vacant lots. Demand for apartments is also rising, as reflected by slow, but steady increases in rental rates. One m anagem ent com pany surveyed reported a occupancy rate of 95 percent on the serveral thousand units it owns. In addition, proper ties are again selling at higher prices, Federal Reserve B ank o f Dallas many for cash. Government and industrial con struction remains strong. Most public outlays for building are road and highway projects, while con struction of petrochemical plants continues to account for most of the industrial projects. Continued on page tw o August 1989 This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) Domestically Built Cars O ut Sell Imports In H ouston Retail Sales Heavy rains and flooding in the Houston area slow ed the pace of consum er spending in June. The dregs of sum m er clearance sales have also w eighed dow n the dollar sales volumes. Despite this, more normal spending patterns are again evident with strong apparel sales leading som ew hat w eaker dem ands for hom e furnishings, according to the survey. Houston area retailers expect further sales gains for the remainder of the year. This optimism is dem onstrated by the arrival o f large shipments of fall and winter mer chandise that was ordered several months ago. These arrivals are boosting inventory levels, and their price are expected to rise 5 to 7 percent above levels earlier this year. A utom otive Sales New car sales are on a steady growth path. Unit sales are 8 percent above corresponding levels in 1988. Purchases of domestically built models are running well ahead of imports which are dow n slightly from a year ago. D ue to Houston's relatively strong econom y, auto makers are diverting more units into the area from w eaker markets elsewhere in the country. Anticipating im proved sales in the months ahead, auto dealers expect significant m arkups in prices of automobiles this fall. Most increases will be about 3 percent, but loading models with virtually all available options can raise prices nearly 10 percent. Prim ary Metals Dem and for aluminum remains at the sam e high level as a year ago. Current production is dow n slightly as consum ption draws down inventories, which are characterized by survey respondents as “a little above normal.” Aluminum prices have fluctuated widely in the past year but remain high enough to sustain current production levels. Prices q uad rupled last year to nearly $2 a pound, but currently stand at just under $1 a pound. Production costs have remained essentially un changed. Paper Industry Demand for paper continues to press production capacity, especially for bleached products, according to respondents. Sales of linerboard, used in cardboard containers, have flattened, but there is no indication of a downturn. Future sales con tinue to be tied to the value of the dollar and export sales. Inventories remain manageable, and imple m ented savings in production costs are holding u p profit margins. Page Two T im ber Products Texas lum ber production was curtailed in June as heavy rains flooded forests. Inventories of logs were draw n down, but logging resum ed as woodlands dried. Home improvements, and patch ing and repairing remained the biggest markets for lumber products. Product prices are slightly above prices a year ago, but the temporary shortage of logs and w age increases are adding to costs which reduce the return on these price increases. P etroch em ical Industry A major petrochemical producer reported sales have decreased slightly in recent months, but that the level of sales w ould remain essentially unchanged for the next two years. This expectation is supported by the fact that the dip in output was attributed to a reshuf fling of inventories in the industry from downstream users to upstream suppliers. A year ago, inventories of petrochemicals w ere largely held by users rather than producers which explains the recent slowdown. Product prices are little changed from a year ago, while w age rates in the industry are up slightly. The large num ber of plant expansions in the industry are expected to lead to lower prices as those projects are completed. ❖
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