TEXAS BUSINESS REVIEW A Monthly Summary of Business and Economic Conditions in Texas BUREAU OF BUSINESS RESEARCH THE UNIVERSITY OF TEXAS VOL. XXXIV, NO. 6 TWENTY CENTS A COPY-TWO DOLLARS A YEAR JUNE 1960 DISTRIBUTION OF MANUFACTURING EMPLOYMENT, TEXAS, 1958 A report on the preliminary 1958 Census of Manufactures, and the data on Texas indus­Source : U.S. Deportment of Commerce, Bureau of the Census, 1958 Census of Manufactures, (Subject to revision) try it presents, begins on page 5. The Business Situation in Texas By JOHN R. STOCKTON Business activity in Texas during April failed to show the improvement many analysts expected, but it continued at a level very near the all-time high. Since most of the fac­tors that might be expected to increase the level of business have had an opportunity for their full effect to be felt, it is reasonable to conclude that no strong rise is in store for the immediate future. At the same time there is no reason to believe that any substantial decline is in prospect. After weighing the forces that might result in a decline against the force of those that show possibilities of expansion, it now looks as if Texas business might continue for several months on something of a plateau. The index of business activity in Texas compiled by the Bureau of Business Research from bank debits in leading Texas cities declined 2% from March to a level 3% above April 1959. The first four months of 1960 were 8% above the same period of last year, and since this index measures the general level of business it may be taken as an indica­tion of the extent to which business has increased in the past twelve-month period. After recovering from the decline coinciding with the steel strike, the index of Texas business has failed to ex­pand further. It has been pointed out previously that the relatively low level of business during the first months of 1960 could be attributed to the cold winter and the late date of Easter, but the figures for April are not quite so optimistic as it was believed earlier in the year that they would be. Texas business appears to be holding steady at the present level, with very few signs of further advance appearing. At the same time that business failed to register strong gains, it also showed no major indications that it would decline from the present level. Retail sales by Texas stores increased 9% in April after allowance for normal seasonal variation. This is the upturn in sales that had been predicted for April, due primarily to the rise in business immediately before Easter. Since cloth­ing is such an important part of the Easter business, it is not surprising that sales of nondurable goods stores rose 12% in April after adjustment for seasonal variation. April 1960 was 7% ahead of April 1959. Sales by durable goods stores, on the other hand, declined 2% from March and were 6% below a year ago. This decline was due to the fact that sales of motor vehicle dealers declined in April more than the normal seasonal amount. All other kinds of busi­ness reported performance better than the average for April. Apparel stores turned in the best performance, with an increase of 18%, when normally there is no change from March to April due to seasonal factors. However, all types of durable goods stores except motor vehicle dealers re· ported an increase in business. For the nation, retail buying hit an all-time high in April, and there is a generally optimistic feeling that this phase of business will be the chief support to a high level of activity. The Commerce Department's Business Advisory Council predicts that consumer buying during 1960 will be the major force that prevents a recession from starting. During the first quarter of 1960 businesses were buying heavily for inventory, but by April this trend had slowed down and inventory accumulation is not expected to have a pronounced influence on total activity in the months to Texas Business Activity Index • Adjusted for seasonal variation • 1947-1949 ..100 TEXAS BUSINESS REVIEW come. During the first quarter of 1960 inventory accumu­lation accounted for almost half of the increase in the Gross National Product. The decline in inventory accumulation has had an im­mediate effect on the volume of industrial production. The preliminary index of industrial production in Texas was 173 in April, compared with revised figures of 173 in both March and February. By the end of April there were signs indicating that the manufacturing segment of the index might do still more to offset the decline in petroleum pro­duction. The index of industrial production for the United States remained unchanged, with steel production showing weakness and automobile production registering an in­crease. If consumer buying continues strong, it will almost cer­tainly be reflected in an increase in orders from retailers and wholesalers. It is almost certain that if this does hap­pen, it will result in increased orders for manufactured goods. This situation would give a strong basis for fore- Texas Industrial Production Index • Adjusted for seasonal variation • 1947-1949·100 Souru : fed•rol hurve Son~ of Oolloi. casting good business during the last half of 1960, since inventories are now reduced to the point that an increase in new orders will result in increased production. The im­provement in consumer buying has not been going on long enough to register its influence on production, but it gives promise of offering support for business in the months to come. The influence of the international situation on Texas business should also be given some consideration. The fail­ure of the summit meeting seems certain to result in greater expenditures for armament. If a crisis should suddenly de­velop, the effect would be sharp and dramatic, but even without any dramatic development it is not unlikely that a gradual increase in expenditures will begin to have an ef. feet on Texas business. In the past, a worsening of the in­international situation has resulted in increased investment in plant capacity as well as increased output of items to be used by the military. Texas industry has in general re­ceived its proportionate share of such expenditures, which have had a stimulating influence on business in the state. The construction industry in Texas still fails to support the level of business activity as well as consumer spending. Building permits issued in Texas cities declined 12 % in April, after seasonal adjustment, and were 14% below a year ago. Residential building authorized was 8% below the previous month, after adjustment, and nonresidential building was 23% lower. For the first four months of 1960 total building permits issued declined 9 % , and residential permits declined 19%. Nonresidential, on the other hand, increased 11 % over the first four months of 1959, but this type of building is not large enough in volume to offset the decline in residential building. In spite of the fact that the level of building is still high, this phase of business is not contributing to the growth of the economy, as it has in the past, and the present slowing down in the building industry offsets some of the increase represented by expanding consumer demand. Industrial expansion continues to represent one of the bright spots in the business picture. The survey of capital spending plans made by the Department of Commerce and the Securities and Exchange Commission in January and February indicated that capital spending in 1960 would be 14% above 1959. A more recent survey made by Mc­Graw-Hill found industry planning to spend $37.9 billion, an increase of 16% over 1959. The McGraw-Hill survey indicates that the heavy emphasis on spending in 1960 will be on replacement and modernization of plant for greater efficiency rather than for expansion of capacity. Detailed figures for spending in Texas are not available, but Mc­Graw-Hill reports that the South and West are gaining in their proportion of total capital expenditures. This is in line with past experience and it seems reasonable to assume that industrial expansion will continue to offer strong sup· port to the business situation in Texas. The capital spending plans for the petroleum industry are of particular interest to the Texas business picture. The petroleum industry plans to spend a record $6.6 bil­lion in 1960 in capital and exploration expenses. Plans for the years 1961 through 1963 assume a continuation of this level of spending through three more years. The 1960 ex­penditures include an increase of 35% in processing, 24% in transportation, 18% in marketing, and only 5% for drilling and production. The increased spending for proc­esssing will be for improvements in the quality of the re­fined products. Marketing expenditures reflect the growing competition at the retail level and the need to make stations SEL ECTED BAROMETERS OF TEXAS BUSINESS (1947-49 = 100) P ercent cha n g e Index Apr 1960 Mar 1960 Apr 1959 Apr 1960 from Mar 1960 Apr 1960 from Apr 1959 Texas Business A ct ivity ····--­ 223 228 21 6 2 + 3 Mis cellaneous freight ca r loadings in S.W . dist r ict ... 83 79 87 + 5 5 Crude petroleum p roduction ...... 109• 115r 120 5 9 Crude oil runs to stills ------------­ 147 142 148 + 4 Total elect r ic power consumpt ion .............................. 403• 380r 358 + 6 + 13 Industria l electric power consumption ··················· ········ 411• 386r 381 + 6 + 8 Ba nk debits -----------------------------------­ 267 273 259 + 3 Ordinary life insura n ce sales . 403 397 398 + 2 + 1 Total reta il sales -----------­-­-------------­ 238• 219r 229r + 9 + 4 Durable-goods sales -­ 162• 165r 172r 2 6 N ondurable-goods sales -----------­ 278• 248r 260r + 12 + 7 Urban building permits issued____ 217 246 252 - 12 -14 Resident ia l ·································· 234 253 301 - 8 -22 N on residential ............................ Indust r ial production, tota l -------­ 195 173• 252 173 202 170 - 23 .. + 3 2 • P relim inary. r R evised. •• Change is less tha-n one-ha lf of one percent. more efficient and attractive. The expenditures for trans­portation will be largely for new gas transmission lines. The small percentage increase in expenditures for drill­ing and production reflects the situation that is depressing the oil industry in Texas. In spite of curtailment in crude production in Texas, total petroleum stocks rose 10 million barrels in April to 754 million barrels. Based on levels re­ported to the Texas Railroad Commission as adequate, stocks were 60 million barrels too large. Except for residual fuel oil, major product prices weakened in April. All major products are priced below a year ago. The prospects for farm income in Texas continue reason­ably good. After a rainy winter and early spring, some areas are in need of rain. But there is some possibility that farm prices in 1960 will show an improvement, and if growing conditions remain as good as at present, farm in­come should be satisfactory for the year. Total nonagricultural employment in Texas rose to 2,509,900 in April from 2,479,300 the previous month. The largest increases were in retail trade, construction, and government, representing mostly seasonal increases. Manu­facturing employment rose 1,700, concentrated in the durable goods industries. CHANGES IN CONDITION OF WEEKI, Y REPORTING MEMBER DANKS IN THE DALLAS FEDERAL RESERVE DISTRICT Source: Board of Govemol'I! of the Federal Reoerve System Percent change• Apr 1960 Apr 1960 Apr 1969 from from from Account Mar 1960 Apr 1969 Mar 1969 TOT AL ASSETS + 1 •• -1 Loans and investments, less loans to banks and valuation reserves ........... . + 2 L oans, less loans to banks and valuation reserves... + 2 + 3 + Commercial, industrial, and agricultural loans t .................. + + •• Loans for purchasing or carrying securities ................. . + + 7 Real estate loans ............................ .. + 5 + Other loans .................................... .. + 2 + 12 + 2 Total U. S. Government securities ....... -------············· + 3 -8 7 Treasury bills ............. . -15 -40 -46 Treasury certificates of indebtedness ............................ . •• -80 3 Other securities ............................ .. Treasury notes and bonds ........... . + + •• + 4 Loans to banks ...... + 47 + 33 + 74 Reserves with Federal Reserve banks .. •• Cash in va ults + 6 + 6 + 11 Balance with domestic banks 4 Other net assets ..................... . + 14 + 2 TOTAL LIABILITIES ...... + •• 2 Total adjusted deposits ........... . + -3 1 Demand depos its .............................. + -5 + 2 Time deposits ................................. . •• •• .. U. S. Government deposits .......... 33 8 44 + + ­Total interbank deposits .......... -4 7 --6 Domestic banks -··-· ---------·············-· -6 -7 -7 Foreign banks ................................. . 12 + -21 + 60 Borrowings .......... ----·············---····· + 26 + 215 + 16 Other liabilities ............. + 16 + 94 + CAPITAL ACCOUNTS .. 4 + + + • Percentage changes are based on the week nearest the end of the m onth. •• Change is less than one-half of one percent. t Includes loans to nonbank financial institution~. TEXAS BUS~NESS REVIEW Editor.._,, ...._,, ________ ............................... John R. Stockton Managing Editor ..... -....................... _ .. Robert H. Drenner CONTENTS The Business Situation in Texas ............---..--.....----...... 2 The 1958 CENSUS OF MANUFACTURES .............. 5 Industrial Production --..............____ ..... -...............-........ 8 Agriculture ..___ .._..... -...--.................................. _. ___ ,,...... I 0 Retail Trade ------............_.........------....._...,....____,,.......... 13 Building Construction ......-.........____............. -.._........... 15 Local Business Conditions ............. -.................. -......... 17 Barometers of Texas Business ..__ ............................... 24 BUSINESS RESEARCH COUNCIL John Arch White, Dean of the College of Business Administration (ex officio) ; John R. Stockton ; W. H. Baughn ; L. G. Blackstock; E.W. Cundiff; J. Neff; G. H . Newlove. BUREAU OF BUSINESS RESEARCH J ohn R. Stockton Stanley A. Arbingast Florence Escott Director Assistant DirectO'r AaBiatant to the DireotOT Resources Specialist Francio B. May Charles O. Bettinger Statistician Alfred G. Da le JunWr Statiaticia.n Research Associate Robert H . Drenner Marie Fletcher Research Associate Fredolin J. Ka.derli Research Associate Research Asaociat• Aileen Donovan Ida M. Lambeth Reaearch AssociattJ Marjorie T. Cornwell Ruea,rch AIBociate Administrative Clerk Anna Merle Danz Roberta Steele Eva A . Arias Librar11 Aasistant CartographOT Statistical Techm4cU... Mildred Anderson Cynthia Edson Josephine J. Knippa. SenWr Secretart1 Senior Clerk T11pi1tStatiatical AaBiatant Margaret Smith Ma J'll'ene Parr Barbara Scaief Seni<>r Secreta1'1/ Senior Clerk Typist Senior Clerk Typist Robert Dorsett Daniel P . Rooas O/faet Pre•• Operator Vernell Prather 0 fJ••t Pre•• Opsrator Senior CIP.rk 1'111>is t Cooperating Faculty Charles T. Clark R obert H. Ryan Stella Traweek AsBista.nt ProfessCYr lnstTUctor in A ssistant Professor of Buainess Statistics Businese Writing of BuBineBB Statistic• Assistants Fred 0. Boecker, Jr.. J ames C. Cline, Harry G. Costis, Keith K. Cox, Ronald M. Farris, and Elizabeth R. Turpin. Published monthly by the Bureau of Business Research, College of Business Administration, The University of Texas, Austin 12. Entered as second class ma tter May 7, 1928 at the post office at Austin, Texas, under the act of August 24, 1912. Content of this publi­cation is not copyrighted and may be reproduced freely. Acknowledge­ment of source will be appreciated. Subscription, $2.00 a year; individual copies, 20 cents. TEXAS BUSINESS REVIEW Texas industrial growth, statewide and by standard metropolitan area, and trends in the major industry groups, are pointed up in the following report on The 1958 Census ofManufactures By STANLEY A. ARBINGAST Preliminary data from the Census of Manufactures, 1958, released in late April by the Bureau of the Census, indicate that value added by manufacture1 in Texas in· creased by 44% between 1954 and 1958. This rise is im· pressive, even if the effects of inflation are considered, be­cause the index of wholesale prices increased only 8% during the four years. Increases above 8% in value added, therefore, represent real gain. Manufacturing employment increased 15% for the state. In 1954 there were 419,200 manufacturing employees; the number had increased to 480,000 by 1958. Even though the state total is sizeable, and Texas ranks high among the states in manufacturing employment, the total is not so im­pressive when it is considered that over 760,000 were em­ployed in factories of the Los Angeles-Long Beach indus· trial complex in 1957. Largest percentage increases by fai: in number of employees by standard metropolitan report­ing area were reported in Austin ( 47% ) and Lubbock (50%). However, each of these census areas had fewer than 5,000 manufacturing employees at the end of the reporting period. Among the four largest metropolitan areas, Dallas had the most substantial increase, 18%, or 3% above the state increase of 15%. Manufacturing employment in the other major metropolitan areas included increases of 17% in Houston, 13% in Fort Worth, and 12% in San Antonio. The only standard metropolitan area which had a decrease in employment was Galveston (probably because of reduc­tion in scope of operations at the Texas City tin smelter and increased automation at other plants in the county). It was notable, however, that value added by manufacture in Gal­veston County increased by 69%, even though there was a slight decrease in employment (See Table I). In the major industry categories, largest increase (183%) in value added by manufacture was in electrical machinery, which also registered an encouraging 105% increase in employment. These increases in employment and value added are due to recent expansion in the manu­facture of electronic equipment, one of the nation's most dynamic industries. Another category which showed a sub­stantial increase in employment and value added by manu· facture was instruments and related products. Only one employment group, lumber and wood products, showed a decline in both employment and value added by manu· facture. While the census showed an increase in manufacturing employment for most counties, there was a decline in at least twenty. The largest decreases appear to have taken place in counties in East Texas where factory employment 1 The Bureau of the Census derives "value added by manufacture" by subtracting the cost of materials, supplies, containers, fuel, pur­chased electric energy and contract work, from the value of ship­ments of manufacturing establishments. has declined because of increased efficiency in sawmilling and in the manufacture of wood products. Significantly, food processing still is the largest employ­ment category in manufacturing. During 1958, an average of 72, 700 persons were working in that industry. Other large employment categories were transportation equip­ment (64,500), chemicals and products (42,200) , pe­troleum and coal products ( 43,900), and machinery except electrical (42,500). Only 2,900 were employed in the manufacture of leather and leather goods (the smallest in­dustry category) , down from 3,400 in 1954. There were other developments of more than ordinary importance, too. The number of manufacturing establish­ments employing 20 or more persons expanded from 2,612 to 3,109-a gain of 19%. Interestingly, in Maine, New York, Vermont, and Michigan the number of manufactur· ing establishments actually declined, while the total number of plants in Texas increased from 8,890 to 10,372 in the four-year period. Recent data available from estimates made by the Texas Employment Commission indicate that manufacturing em­ployment is continuing to increase (a total of 490,000 pro­duction workers in March 1960). However, is it expanding fast enough to offset loss of employment in agriculture, oil production and exploration, and lumbering? New jobs must be created in manufacturing and service industries to TABLE 1 PERCENT CHANGES IN MANUFACTURING EMPLOYMENT AND IN VALUE ADDED BY MANUFACTURE, STANDARD METROPOLITAN STATISTICAL AR EAS, TEXAS, 1954 TO 1958 Standard m etropolitan statistical areas N umber of employees Value added by m a nufactur e (unadi uated) TEXAS, total ......... + 15 + 44 Amarillol ................ .. .... + 15 + 52 A ustin ... + 47 + 80 Beaumont-Port Arthur' + 8 + 44 Corpus Ch risti ............ . + 11 + 66 Da llas' ....................................... . + 18 + 58 El Paso ................................... + 19 + 70 Fort Worth' ........................... . + 13 + 38 Ga lveston ..................... . + 69 H ouston ............................. + 17 + 32 Laredo .. .... + 10 + 32 Lubbock ........................... + 60 + 74 Sa n Angelo ............. ... ... ......... + 8 + 47 Sa n Antonio ............................ + 12 + 37 W aco ....... ....................... + 15 + 35 W ichita F a lls ..... ................... + 9 + 7 • Change is less than one-half of one percent. 1 Includes Potter and Randall counties. 2 Includes Jefferson and Orange counties. a I ncludes Collin, Dallas, Denton, and Ellis counties. " Includes Johnson and Tarrant counties. Source: U.S. Department of Commerce, Bureau of the Census, 1958 Gen.ms of Manufactures (Preliminary). TABLE 2 PERCENT CHANGES IN NUMBER OF EMPLOYEES AND IN VALUE ADDED BY MANUFACTURE, TEXAS MAJOR INDUSTRY GROUPS, 1954 TO 1958 Number of Value added by ma nufacture Industry employees (unadjusted) ALL INDUSTRIES, total + 15 + 44 Food and kindred products ... + 7 + 24 Textile mill products + 1 + 19 Apparel and related products .......................... . + 13 + 36 .Lumber and wood products -18 -5 Furniture and fixtures __ -··· + 10 + 31 P ul p, paper and products .... + 21 + 75 Print ing and publishing .... + 17 + 34 Chemi cals and products ..... + 14 + 47 P trolcum and coal products + 7 + 43 Leather and leather goods ... -15 + 10 Stone. clny and gla ss products .. ... . ........ + 58 + 71 Primary metal industries .... + 5 + 39 Fa bricated metal products .. . + 30 + 46 Machinery except electrica.l + 31 + 32 Electrical machinery ............ +105 + 183 Trans portation equipment ... + 16 + 68 Instruments and related products + 98 +112 Miscellaneous ma nufactures -28 + 38 (includin::: Ordnance) Administr ative and auxi liary + 26 n .a. n.n. Not nvnilable. Source: U.S. Department of Commerce, Bureau of the Census, 1958 Cf'?1s1ts of Mariufactu.res (Preliminaru). absorb those displaced by mechanization of agriculture, by decreases in manned aircraft manufacturing employ-· ment, by closing of some military bases and in reduction of civilian employment at many others, and by automation and centralization of the lumbering industries. Most sig­nificantly, it now appears that the Texas petroleum indus­try will stabilize and that output, as well as the amount of exploration, may even decline. Many communities in Texas which have traditionally depended on the exploration for petroleum and on its production have already been ad­versely affected by this development; the trend may be ex­pected to continue. If new manufacturing and service in­dustry jobs are not created, many Texans will be forced to migrate to more dynamic areas for the purpose of seeking employment. Another trend which must be studied carefully is in manufacturing-the trend to automation of processing. This means that the press of competition and higher wage scales are forcing management of industry to increase productivity through the use of automatic devices. A news release in the Houston Post for March 15 stated that Good­year was planning to convert its Houston synthetic rubber plant, the largest in the United States, to electronic controls. Several Texas petroleum refineries have lowered operating costs and increased output with adoption of automation; in at least one instance this was accomplished with a reduction in employment. Although plant investment in Texas each year is high and is expected to remain high, Texans must realize that the majority of manufacturing plants in the state are relatively new and, because they are new and ef­ficient, employment is not as great as might be expected. In other words, plant investment per worker is high-espe­cially in refining and in the manufacture of chemicals. On the other hand, announcements of several new and large industries are encouraging. Among new plants re­cently announced for the state of Texas are a paper mill to be constructed by Anglo-Southern Paper Corporation at Texarkana, the Keasby-Mattison sewer pipe plant at Hills­boro, the Alpha Corporation electronic research and manu­facturing facility at Richardson, a new cement plant under construction by Texas Industries at Midlothian, a huge new cycling plant being built by Humble near Kingsville, a plant to produce a new type of synthetic rubber to be built at Beaumont by Goodyear, a new Anheuser-Busch brew­ery costing $30 million at Houston, new steel mills to be erected by Sovereign Steel at Palestine and by Border Steel at El Paso, and new chemical plants to be constructed by the Celanese Corporation at Bay City and by Monsanto near Alvin in Brazoria County. Important, too, was the joint announcement by El Paso Natural Gas Company and the Rexall Drug Company that they would cooperate in the construction of an $80 million plastics and chemical manufacturing facility to be integrated with other chemical producing facilities already built at Odessa. Union Carbide is modifying and preparing to place the Brownsville chemi· cal complex (first operated by Carthage Hydrocol and later by Pan American Chemicals) on stream again. Sev­eral smaller plants and many expansions of factories al­ready in place have also been announced. There have been some disappointing developments, too. Aircraft factory employment is down and is expected to decline further. Deactivation of the large Overhaul and Re­pair facility of the Navy at Corpus Christi meant a loss of employment to nearly 3,000 persons. The uncertain outlook for petroleum production has resulted in decreases in the number of workers employed in Texas' important oil in· dustry equipment manufacturing industry. Bethlehem Sup· ply has cea_sed production at Corsicana, and the plant (with the. exception of.the foun~ry, which will be reopened by Smith Steel Castmg Co.) is to be dismantled. W-K-M Di­vision of ACF Industries has closed its cast mold and pres· TABLE 3 PERCENT CHANGES IN MANUFACTURING EMPLOYMENT SELECTED COUNTIES, TEXAS, 1954 TO 1958 ' Percent Number of Number of change, employees, employees , 1958 County 1954 1958 from 1954 Bowie .... 4,729 2,714 - 43 Cooke 1,392 1,149 - 17 Dewit t ....... ·-·· ··············· l ,121 1,089 - s E astla nd ---·············-···--·-­ 657 567 - 14 Galveston ··············· 10,910 10,628 - s Gonzales ........ 569 485 - 15 Hale .. .... 593 464 - 23 Hill --······················· --············ ·--···---­ 690 587 - 15 Kaufman ·················-·-··--· 926 736 - 21 .Liberty 832 635 - 24 Montgomery ... -·-··············-·-········· 1,460 1,126 - 2S N ncogdoches .. .... ------·-·······--·-· -·· ···· 1,643 1,584 - 4 Nola n ·-··----·········· 1,112 1,037 - 7 Palo P in to 770 657 - 15 Polk ................ 1.147 935 - 18 Rusk 588 541 - 8 Sabine ...... 950 708 - 26 Shelby -----------­ 1,007 995 - 1 Walker ------------­--­ 377 326 - 14 Williamson ------···· 876 705 - 20 Sou1·ce: U . S. Department of Commerce. Bureau of the Census, 1958 Census of Manufactur es (Prel.imV..ary). TEXAS BUSINESS REVIEW BUREAU OF BUSINESS RESEARCH PUBLICATIONS Criteria for Disclosure of Post-Statement Events By WILLIAM B. FLOWERS, Assistant Professor of Accounting two dollars fifty cents Condition and Income of Texas Commercial Banks: ; The Effects of Size and Location, J956 c::nd J958 I I I By WILLIAM H. BAUGHN, Professor of Finance and DAVID TOWNSEND, Associate Professor of Finance two dollars sure valve plant at Richmond, where approximately 300 workers lost jobs. These and similar local developments will probably cause many Texans to ponder whether the state's economy is as dynamic as they think. Actually, the outlook is not un­promising. One thing seems certain, however: the State of Texas and its citizens must greatly expand efforts in the area of industry attraction. There is intensified competition among states for industry; every state in the nation is seek­ing to expand the manufacturing segment of its economic base, and Texas is forced to compete with them. Some industries will still seek Texas locations because this is the most economic place in which to operate, but the majority will have to be sold on opportunities here. Texas cities large and small are seeking industry; there is competition among them, too. Many of these communi­ties will be successful in their campaigns, but just as many will probably be disappointed. Unfortunately, there is not enough industry to go around. The most promising outlook during the next decade would appear to be for those com­munities located within a 75-mile radius of the major metropolitan areas. Assets for attracting more factories to Texas are nu­merous. Diversified resources in quantity are present, and the majority of them are in strong demand for use as raw materials by modern industry. The skills of the labor force are in a continuous process of upgrading, and the size of the labor market will expand considerably in future years because of the youthfulness of the state's population. Stra­tegic geographic location is a highly significant asset in serving the vast mid-continent and national markets; loca­tion midway between the dynamic growth areas of the Pacific Southwest and the Atlantic Southwest should prove to be highly significant in the future. The harbors of the coast and the lntracoastal Canal give the state access to world markets and raw materials--particularly to those of nearby Latin America; they also help to provide access to the area served by this nation's great inland transportation network. Texas highway, rail, and air transportation fa. ~ilities are superb. Living conditions and other amenities m the majority of the state's communities are satisfactory and competitive. Planned industrial developments, of which the Great Southwest Industrial District in the Dallas-Fort Worth area is an example, have helped many communities compete for new factories and the relocation of others. One attractive factor which the state fails to promote suf­ficiently is climate. There is great misunderstanding con­cerning the Texas climate. California, Arizona, Colorado, Florida, and the states of the Pacific Northwest have em­phasized climate as an amenity, and the emphasis has paid encouraging dividends. Texas also needs to convince out· siders that at least a start in the direction of solving its water supply and distribution problem is underway; Texas can no longer afford to consider this problem on an emer­gency basis. The need for planning is long range in scope, and money for water conservation projects must be made available in more generous amounts than have been typical in the past. If Texas is to compete with other states, it must also ex­pand spending for education, especially higher education. No state can afford to be niggardly in this respect. The most dynamic of modern industries are heavily dependent on re­search, and the success of industrial research activities is in turn based on the availability of highly trained person­nel. The heavy concentration of space and electronic indus­tries in the Bay and Los Angeles areas of California and in the Boston region was no accident. Superior sources of sup­ply for research personnel, such as M.I.T. and the Univer­sity of California, had notable attractive power. There is strong evidence to support the assumption that Texas is not providing adequate facilities for graduate train­ing, and some of the most promising of its young people are forced to go elsewhere for advanced education. Many of them never return; therefore, the state loses some of its brightest minds. This is false economy. It is important to note that most executives of industry do not object. to generous state expenditures for education if they feel they are receiving a good return for their tax dollar investment. The decennial census, now in the final stage, will provide additional accurate information on manufacturing employ­ment. However, study of data already released indicates that there will be population declines in at least half of the Texas counties. These declines help to emphasize again that agricultural employment is declining and that many Texas communities, if they are to survive, will be forced to supplement their incomes from other sources. Of these sources, manufacturing would appear to offer the most permanent long range benefits. ESTIMATES OF NON AGRICULTURAL EMPLOYMENT Industrial Production: Source: Texaa Employment Commls•lon In cooperation with the Bureau of Labor Statistics, U. S. Department of Labor PROBLEMS OF THE SMALL MANUFACTURER Percent change Employment (thous) A pr 1960 Apr 1960 By ALFRED G. DALE Apr• Mart Apr from from Industry 1960 1960 1959 Mar 1960 Apr 1959 TOTAL NONAGRICUL- In recent years the problems of small business have re­TOTAL ...... . ............... 2,509.9 2,479.3 2,459.4 + 1 + 2 ceived increasing attention in academic studies and in MANUFACTURING ...... 491.5 489.8 486.4 •• + legislative and administrative action. The small business­ Durable goods ............... 235.5 233.3 234.1 + + 6 man, like the small farmer, plays an important role in Ordnance ........ 1.6 1.6 1.7 •• Lumber and wood products 20.8 20.5 20.1 + 1 + American life, socially and politically, as well as eco­ Furniture and fixtures .. 11.1 11.0 11.1 + 1 •• nomically. And like the small farmer, the small business­ Stone, clay, and glass man is confronted with changing sets of conditions that products ........... . 23.3 23.3 23.4 •• •• make it increasingly difficult for him to operate successfully Primary metals ................... . 25.6 25.3 24.9 + 1 + 3 Fabricated metal products 29.2 29.0 29.4 + 1 •• along traditional lines. In an economy that seeks to pre­ Mach inery (except serve small enterprise for complex social reasons, it be­ electrical) ......................... . 40.6 40.5 38.6 •• + comes important to consider how this may best be accom­ Electrical equipment plished without doing violence to the current facts of and machinery ............... . 18.1 18.0 13.5 + 1 + 34 Transportation equipment 54.8 54.2 61.8 + 1 -11 economic life. Other durable goods ........ . 10.3 9.9 9.6 + 4 + 7 The problems of the small businessman are usually con­ + 1 Nondurable goods ................. . 256.0 256.5 252.3 •• sidered as being primarily a matter of deficient managerial Food .............................. . 78.9 79.2 76.7 •• + 3 technique. Innumerable case studies of unsuccessful busi· Textile mill products ....... . 7.2 7.2 7.1 •• + Apparel ........ ...................... . + 34.7 35.3 34.3 2 ness ventures indicate that poor management is frequently Paper and allied products 9.8 9.9 9.7 + the apparent proximate cause for failure. These deficiencies Printing and publishing .... 29.8 29.5 28.5 + 1 + 5 typically include poor record keeping and internal control Chemical and allied 42.0 procedures; a tendency to overspecialize in certain mana­ products ............................. . 43.5 43.2 + 1 + 4 Petroleum products 42.5 42.5 44.6 •• 5 gerial functions (it is seldom that a small businessman is Leather and leather both a good production engineer and a good salesman); 3.5 3.5 3.4 products ............... . •• + and inadequate use of relevant information in making key Other nondurable goods ... 6.1 6.2 6.0 2 + 2 decisions (e.g., pricing policy, investment plans, and so NONMANU­ FACTURING ................ 2,018.4 1,989.5 1,973.0 + 2 on). Additionally, the small businessman, partly because Mining ...................................... 124.5 124.5 128.9 •• 3 of deficient managerial technique, but partly because he is Petroleum and natural small, is typically hag-ridden by chronic financial difficul­gas ...................................... 116.9 117.0 121.4 •• 4 + ties, notably insufficient working capital, that force him to Metal, coal, and operate from expedient to expedient and crisis to crisis. other mining .................. 7.6 7.5 7.5 + 1 + Contract construction ........ 164.6 158.3 169.1 + 4 Diagnoses of how the small businessman can improve hie Transportation and utilities 227.5 228.6 225.0 •• + 1 probabilities of survival or success are usually concerned Interstate railroad ............ 42.0 41. 7 43.6 + 1 4 with problems in these two areas, and prescriptions are usu­Other transportation . ...... 104.7 106.0 101.1 + ally aimed at improving either managerial technique or Telephone and telegraph ... 39.2 39.0 38.6 + 1 + 2 the financial environment of the small firm . Public utilities .................. 41.6 41.9 41.7 •• Government .............................. 438.1 429.2 419.2 + 2 + However, there is a third problem area that has re· Trade .......................................... 642.0 533.4 621.0 + 1 ceived little attention but which may be of equal impor· W holesale trade .................. 172.1 172.5 168.6 •• + + 2 lance to the survival or success prospects of the small firm. Retail trade .................. 469.9 460.9 452.4 + 2 + 4 The outcome of decisions is affected not only by the tech· Building materials­ nique of the decision maker, but also by the restrictions that hardware ........................ 40.4 38.9 37.0 + 9 + are imposed by the environment in which his decisions are General merchandise ...... 82.9 81.6 79.0 + 2 + 5 being made. These environmental limitations in fact re­ Food and liquor stores.... 78.8 78.4 74.8 + 1 + 5 strict the number of solutions that are available to the de­ Automotive stores .......... 79.0 78.3 78.2 + 1 + cision maker, and constitute absolute limitations upon his Apparel stores ................ 30.9 29.1 30.3 + 6 + 2 actions whenever he is unable to modify them. Other retail trade .......... 157.9 154.6 153.1 + 2 + 3 Finance, insurance, and The environmental restrictions upon the small manu­real estate facturer reflect the market structure in which he typically Bank and trust companies 30.5 30.4 29.4 •• + operates. It is possible to define four different market situ­ Insurance .............................. 50.0 49.4 49.1 + + 2 ations, each of which contains elements that may prove Real estate and finance...... 38.0 37 .3 36.8 + 2 + 3 dangerous for the small firm in the long run. Experience Service and miscellaneous .... 303.2 298.4 294.5 + 2 + 3 shows that unsuccessful manufacturers are typically not Hotels and lodging places.. 29.3 28.4 29.0 + 3 + only deficient in managerial ability, but are operating in Laundries and cleaners .... 35.9 35.3 35.2 + 2 + 2 one of the following environments: Other services and miscellaneous 238.0 234 .7 230.3 + 1 + 3 1. Fringe producers in an industry dominated by one, or a few, large companies. • Preliminary. •• Change is less than one-half of one percent. 2. Subcontractors to large companies or prime con­t Revised. tractors. TEXAS BUSINESS REVIEW Index • Adjusted for seasonal variation • 1947-1949·100 200 operations, but should consider whether or not the firm is subject to enviromental constraints of the types noted. If the market environment is potentially adverse it may be­ l 50 come necessary to design solutions that permit the company to escape from a situation that sooner or later will put a ceiling on the growth of the firm or imposes unacceptable l survival probabilities in the long run. Such "escape solutions" may involve expansion into new 50 geographic markets, product modification to exploit new segments of demand, product innovation, selling to addi­tional consuming segments, mergers, recapitalization. Suc­ 0 cessful solutions will be different in specific cases, but as a general proposition should permit the firm to exert more Texas Industrial Production Total Manufactures Index • Adjusted for seasonal variation • 1947-1949·100 3. One of a large number of small companies in a highly fragmented industry. 4. Producers of products with excellent potential de­mand, but which require investment, either in engineering or market development, beyond the financial capacity of the firm. Each of these situations is potentially inimical to the success of any small company, no matter how well-managed it may be, and no matter how strong its current financial situation. In each case the basic weakness arises from the fact that the small firm, in the last resort, can exert little or no control over its market environment. In the first two cases the small company must be prepared to accept major changes in the magnitude and character of its demand schedule initiated by decisions taken outside the firm and usually without reference to the specific consequences that these may involve. In the third case, the existence of a high­ly fragmented industry is usually a priori evidence that the character of the market, or of the product, or of the tech­nology of the industry is such that companies are con­demned to remain small, and under such conditions the manufacturer clearly has little control over the influences that affect his sales. In the last case the small manufacturer may be condemned to ultimate failure simply because he is unable to mobilize the financial resources necessary to exploit the demand potential for his output. In this respect the situation may be analogous economically to the propo­sition that the "take-off" into sustained economic growth in underdeveloped countries requires a massive injection of capital over a relatively short period of time, otherwise the economy will stabilize in a low-level trap. A similar break­through is often necessary in the small business situation. These considerations suggest that, in planning the future course of a small firm, its management should seek not explicit control over the demand for its output. Under these circumstances the firm can engage in more rational planning than is possible in situations where it is continu­ally on the defensive and forced to react to events beyond its immediate control. The nature of appropriate escape solutions is a matter of importance to anyone with an interest in preserving the viability of small business. They define the conditions under which this sector may most appropriately and ef­ficiently fulfill its function at a time when the economies of production and the demands of complex technologies tend to favor the growth of very large companies over wide areas of the economy. The problem of small business is not only a matter of achieving more efficient administration of operations, or of solving chronic financial difficulties. These are, of course, necessary elements in ultimate suc­cess or failure, but do not constitute sufficient conditions in themselves. In many cases success or failure will depend upon decisions involving competitive posture in an environ­ment that may be increasingly adverse for the small firm. WELL COMPLETIONS Source : The Oil csnd G