TEXAS BUSINESS REVIEW A. Monthly Summary of BusineS& and Economic Conditions in Texm BUREAU OF BUSINESS RESEARCH THE UNIVERSITY OF TEXAS VOL. XXIX, NO. 4 TWENTY CENTS A COPY-TWO DOLLARS A YEAR APRIL 1955 Dairy product 111 fll • ll11 Churning, whipping, and freezing milk products has never been a really big business in Texas. The seeds of failure for dairy manufacturing were planted in early years, when too little thought was given to breeding superior dairy cattle. The result has bee.n a long history of low yields and uneco­nomical operation. Midwestern dairymen, with their productive, well-managed herds, have long provided competition that Texans have been hard put to meet. The chart below shows what percentage of manufacturing milk (all except that sold as fluid milk) went into each product during four recent years. The apparent shift in emphasis from but­ter to ice cream is largely a result of the loss of butter markets to oleomargarine. Recent popu­larization of mellorine, the vegetable oil ice cream, has placed ice cream in a similarly defensive marketing position. Cheese -­Concentrated Products ­ Ice Cream ­ Butter- But this chart tells only part of the story. Overall production of manufactured dairy food's has de­clined swiftly from its 1941 peak. Ice cream mak­ing has not really quadrupled since 1940, although its relative share of the market has grown fourfold. It has only won a larger share of a smaller market. The total output of processed dairy foods in Texas is barely half the prewar volume. More of the Texas dairyman's output has been sold in recent years as fluid milk, which is obviously more difficult and expensive to ship from the Mid­dle West than is butter, for example, or cheese. There may be no really secure method of fore­casting the future of the Texas dairy industry, but a review of past errors and trends may help sug­gest how some of the problems may be solved, or at least circumvented. I Please turn to page 16.) TEXAS BUSINESS REVIEW The Business Situation in Texas Business activity in Texas rose along a broad front in February, after having slipped back slightly in January from the level of December 1954. The February rise was strong enough to push the index of business activity com­piled by the Bureau of Business Research to 163, exceed­ing the previous high established in December 1954 by one point. Only two of the eight components of the index of busi­ness declined, and these two accounted for only 12% of the total weight in the index. The change in each of the in­dividual components is shown in the table below. INDEX OF TEXAS BUSINESS ACTIVITY AND COMPONENT SERIES (Adjusted for seasonal variation, 1947-49 =100) Feb J an Percent Index Weight 1955 1955 change INDEX OF BUSINESS ACTIVITY (COMPOSITE) ------------------------------100.0 Total electric power consumption --------------3.0 Crude oil runs to stills --------------------------------3_9 Ordinary life inourance sales, deflated __ 4.2 Crude petroleum production -------------.. -----8.1 Construction authorized, deflated, _____________ 9.4 Miscellaneous freight carloadings in Southwest district --------------------------__ 10.0 Industrial electric power consumption______ 14.6 Retail sales, deflated __________ ---------------------46.8 163* 159* 3 + 245* 233t 5 + 139 136 2 + 196 224 -12 128 130 -2 163* 148* + 10 94 94 0 260* 24lt 8 + 148 146 1 + *Preliminary. tRevised. The building industry continued in February to furnish the strongest upward thrust to business activity. After dropping to 198 in January the index of construction authorized rose 11% in February to bring the level to 219. This value of the index was 44% above a year ago and 18% higher than the average month of 1954. The chart on page 4 shows the rise in this barometer since the middle of 1953; since August 1953 an increase of 94% has been registered in building construction authorized in Texas. Although this series is often erratic in its fluctuations, the past 18 months have shown a surprisingly steady rise. The boom in Texas building parallels the high level of activity in the nation. Nonfarm housing units started in February totalled 90,000-20% more than a year earlier. After making allowance for seasonal variation, this repre· sented an annual rate of almost 1,400,000 starts. Much of this increase in housing starts resulted from a rise in the number of FHA and VA loans. The number of requests for VA appraisals in February 1955 was 87% higher than a year ago, while the total for 1954 was 113% greater than in 1953. The number of applications for FHA commitments in February 1955 was 42% greater than a year earlier. Moreover, the total for the year 1954 was 33% greater than for 1953. The liberalized FHA mortgage terms ap­proved last summer have obviously bolstered the demand for residential housing. The great increase in requests for VA appraisals indicates the growing importance of this method of financing. In 1954 approximately one-fourth of VA loans closed were of the no-down-payment variety, and by the end of the year three-eighths of all VA loans were of this type. There seems to be little doubt that Texas business will remain reasonably good as long as the volume of building remains high. In spite of some concern over the possibility that the supply of housing may catch up with demand, continued high incomes and the substantial volume of savings are still important supports to the building pro· gram. The easier credit conditions prevailing since last summer have also contributed substantially to the industry. The continuing high demand for commercial and indus­trial building may be expected to shore up the overall busi­ ness picture. Texas Business Activity 200 150 100 50 0 Index· Adiusted for seasonal va.riation · 1947-1949=100 )' '\_,.. v" 'J' A A V" v -/~Lr!" 200 150 100 50 0 ~~ ~' _,Alt\../ ~ ,_ - 1939 '40 '41 '42 '43 '44 '45 '4'6 '47 '48 '49 '50 '51 '52 '53 '54 ·55 ~~~~~~~~~~~~~~~~~~~~~~~~~--' Information on business plans for capital expansion dur­ ing 1955 has just been published and tends to support the view that business during the coming year will continue to rise. The Office of Business Economics of the Department of Commerce and the Securities and Exchange Commis­ sion have just published the results of a survey made in February and early March on business plans for outlays on plant and equipment for the coming year. The peak of investment in plant and equipment was reached in 1953 and turned down slightly in 1954. The 1955 investment programs of business concerns total $27.1 billion, com­ pared with $26.8 billion in 1954 and $28.3 billion in 1953. The expected outlays by manufacturing concerns were reported to be down 3% in 1955; durable-goods industries planned to cut back 4%, and nondurable-goods industries, 2%. Mining and transportation companies also looked for 1955 to register a decline. Public utilities and commercial concerns, on the other hand, expected their outlays to in­ crease in 1955. In public utilities, the increa~ed expansion programs were expected to be confined to natural gas transmission lines, with electric companies planning little change from 1954. The greatest increase in investment was anticipated in the commercial field, where both trade and communications companies were planning to increase their spending over 1954 .. The continued rapid growth of shop­ ping centers, as well as the extensive modernization pro­ grams for older stores, contributed to the optimistic posi­ tion of commercial companies. The study of investment plans of business is confined to tabulation of data on a national basis, since the sample is not large enough to permit breaking out Texas concerns separately. General information on the expansion of Texas industries indicates that probably more than the propor­ tionate share of the new capital purchases will be made in Texas. The expansion of the market in the Southwest may be expected to continue to attract new industry to the state to make use of southwestern resources in supplying this market. Information on business plans for investment has been collected since the end of World War II and has become an important part of the factual information on which forecasts can be based. Obviously, the reported invest­ ment plans of businesses can be changed, but the antici­ pated investment reported by business has been reasonably close to the amount actually spent. For example, a year ago expenditures were expected to decline 4 %; the actual ex­ penditures declined 5%. Since investment is one of the most dynamic portions of total business, a forecast of this activity is a very valuable aid to the business economist and tends to improve the accuracy of his forecasts. Another indicator of the intentions of business to ex­pand capital equipment can be seen in the orders for ma­chine tools. Machine tools represent pure capital invest­ment, since they are not sold to consumers but are pur­chased by businesses to be used in the production of goods. Any slackening in the demand for finished goods may be expected to be reflected in the demand for machine tools, and conversely, the demand for machine tools can be expected to increase as soon as there is any indication that the demand for goods is improving. Machine tool orders for February continued the upturn that started in December. The National Association of Machine Tool Builders reported that February 1954 or­ders were 31 % ahead of February 1953 and represented a 17-month high. Forecasts of orders for 1955 are running as much as 50% higher than in 1954, and most of the busi­ness received to date in 1955 has been civilian orders. Orders have been well distributed among industries, indi­cating that the upturn in industrial activity is not concen· trated in a few kinds of business. Shipments during Febru­ary were low, since the increase in orders had not yet been reflected in current output. Because of the size and com­plexity of many machine tools, a considerable lag general­ly occurs between orders and shipments. The increase in orders will be reflected in shipments of the next few months. The survey on anticipated capital expenditures also asked businessmen how they expected their 1955 sales to compare with 1954. Advances were projected in all major classifications of business. The largest relative increase was the 8% expected in public utilities. All major manu­facturing industries projected sales increases, ranging from 12% in nonferrous metals to 1 % in machinery other than electrical, and showing a 4% increase expected for all manufacturing industry. While a separate tabulation of Texas firms could not be made from this sample, there is no reason to believe that Texas industries will not share in any gains registered on a national basis. Since the recovery movement last year started sooner in Texas than for the country as a whole, it might logically be argued that the increases in Texas businesses might be larger than for the rest of the country. Bank Debits in Texas Index· Adju.sted for seasonal variation · 1947-1949:100 1939 '40 '41 '42 '43 '44 '4S '46 '47 '48 '49 'SO 'Sl 'S2 'S3 '54 'SS The first results of the annual survey of consumer fi­nances and buying plans made by the University of Michi­gan Survey Research Center were released in March. This study indicated that consumers expect to have more money in 1955 than in 1954 and plan to spend more on homes, furniture, and appliances than they did last year. The percentage of people planning to buy new automobiles was less for this survey than a year ago, although this may be explained by the fact that the interviews were made this year after many 1955 models had been sold. The survey was made last year at the time the new models were coming out. Both of these surveys have been rather accurate since the war in predicting the pattern of consumer buying of durable goods, although it is obvious that many factors could arise to throw the prediction off. It is probablv too soon to evaluate the success of anticipatory series su~h as the two surveys mentioned above, but the record since the end of the war has been rather encouraging. If they are successful in predicting the course of business investment and consumer spending for durable goods for 1955, it means that business should continue to improve through­out the remainder of this year. JOH'.\' R. STocrno'i TEXAS BUSINESS REVIEW TEXAS BUSINESS REVIEW Robert H. Ryan ·····---··----. .......--.--Managing Editor COLLEGE OF BUSINESS ADMINISTRATION THE UNIVERSITY OF TEXAS William R. Spriegel. -----···-----· ____ _______ Dean Business Research Council William R. Sprlegel (ez officio), J. W. Cashin, A. F. Etier, J. L. Hazard, Elizabeth Lanham, R. H. Montgomery, and G. H . Newlove. STAFF OF THE BUREAU OF BUSINESS RESEARCH John R. Stockton Direct