TEXAS BUSINESS REVIEW VOL. XLV, NO. 4, APRIL 1971 ~ditur, Stanley A. Arbingast ; Associate Editor, Robert H. Ryan; Managing Editor Graham Blackst k Ed1tonal Board· Stanley A A b · t Ch · J ' OC · · r mgas , airman; ohn R. Stockton; Francis B. May; Robert H. Ryan· Robert B W'lli . Joe H. Jones; Graham Blackstock CONTENTS ARTICLES 69: The Business Situation in Texas, by Robert B. Williamson 73 : Texas in the Seventies: 14. Savings and Loan Associations­Past and Future, by Robert D. Mettlen 77: Texas Construction: Housing a Prop for the Economy? by Graham Blackstock 83: Evaluation of Personal-Income Estimates, by Joe H. Jones TABLES 70: Index of Wholesale Prices, United States 70: Indexes of Prices Received by Farmers in Texas 71: Selected Barometers of Texas Business 72: Business-Activity Indexes for Twenty Selected Texas Cities 72: Texas Mohair Production, 196 7-1969 73: Savings Capital, Mortgage Loans Outstanding, and Total Assets of All Insured, FHLB-Member Savings and Loan Associations in Texas, 196().1970 74: Number of FSLIC-Insured Savings and Loan Associations Operating in Texas, 1959-1969 7 5: Structural Characteristics of Texas Savings and Loan Associa­tions, December 31, 1969 7 5: Charter Characteristics of FSLIC-Insured Savings and Loan Associations in Texas, 1965-1969 76; Comparative Percentage Distribution of Savings Associations by Asset Size and Number, Texas and the United States, December 31, 1969 77: Estimated Values of Building Authorized in Texas 78: One-Family, Two-Family, and Apartment-Building Dwelling Units Authorized in Standard Metropolitan Statistical Areas 79 : Values of Housing Permits Issued, Texas, 196().1970 83: Texas Personal Income as Estimated by the Bureau of Business Research and as Measured by the U.S. Department of Com­merce 83: Ratio of Transfer Payments to Personal Income in the United States, 1968-1970 84 : Local Business Conditions Barometers of Texas Business (inside back cover) CHARTS 69 : Estimated Personal Income 70: Consumer Prices, United States and Dallas 71: Industrial Production, Total Manufactures, Texas 71: Industrial Production, Durable Manufactures, Texas 71: Industrial Production, Nondurable Manufactures, Texas 74: Growth of Total Assets of Insured, FHLB-Member Savings and Loan Associations in Texas and the United States 75: Savings Growth in Insured, FHLB-Member Savings and Loan Associations in Texas and the United States 79: Residential Building Authorized, Texas 80: Business-Activity Indexes for Twenty Texas Cities ' · 1 amson, BUREAU OF BUSINESS RESEARCH Business Research Council: James R. Bright, Abraham Charnes, Lawrence L. Crum, Jared E. Hazleton, George Kozmetsky Director: Stanley A. Arbingast Special Research Associate: Joe H. Jones Assistant to the Director: Florence Escott Statistician: John R. Stockton Consulting Statistician: Francis B. May Systems Analyst: David L. Karney Cooperating Faculty: Charles T . Clark, Lawrence L. Crum, Clark C. Gill, William T. Hold, Robert K. Holz, Jerry Todd , Ernest W. Walker, Robert B. Williamson Administrative Assistant: Margaret Robb Research Associates: Graham Blackstock, Margaret Fielder, Letitia Hitz, Ida M. Lambeth, Robert M. Lockwood, Robert H. Ryan, Stella Saxon, Charles P. Zlatkovich Research Assistants: Edward Hildebrandt, Ralph Samford Statistical Associate: Mildred Anderson Statistical Assistants: Constance Cooledge, Glenda Riley Statistical Technicians: Kay Davis, Lydia Gorena Computer Assistants: Lawrence Grossman, Jr., Charles Jordan Cartographer: Penelope Lewis Librarian: Merle Danz Administrative Secretary: Jeanette Pryor Administrative Clerk: Margaret Eriksen Senior Secretary: Melinda Newton Senior Clerk Typists: Deborah Frishman, Rebecca O'Neill Senior Clerk: Salvador B. Macias Clerks: Robert Jenkins, Karen Schmidt Offset Press Operators: Robert Dorsett, Daniel P. Rosas COVER DESIGN BY PENELOPE LEWIS Published monthly by the Bureau of Business Research, Graduate School of Business, The University of Texas at Austin, Austin, Tex~ 78712. Second-class postage paid at Austin, Texas. Content of this publication is not copyrighted and may be reproduced freely, but acknowledgment of source will be appreciated. The views expr~saed by authors are not necessarily those of the Bureau of BUBmeM Research. Subscription, $4.00 a year; individual copies 35 cents. The Bureau of Business Research is a member of the Association of University Business and Economic Research. THE BUSINESS SITUATION IN TEXAS Robert 8. Williamson The economies of Texas and the nation as a whole remain in a state of limbo, between the paradise of a strong recovery without inflation and the perdition of a severe recession with inflation continuing. Economic conditions are not terribly bad, but neither are they very good. Economic growth continues to be erratic and generally below the normal rate of population growth-and below expectations. The promise of improvement, however, still seems as soundly based as ever. Government economic policies are expansive, incomes (although not growing rapidly) are high relative to consumer spending, the homebuilding boom is underway, business inventories are lean and right for substantial accumulation, and the statistical indicators which typically lead a business upturn have signaled that the upturn is coming. Texas personal income estimates prepared by the Bureau of Business Research, the most comprehensive measure of economic activity available for the state, indicated no essential change from January to February and showed the February level to be only 2 percent higher than that a year earlier. Since this annual growth rate for money incomes was less than the rate of inflation, it consequently represents a loss in real income during the period. The personal-income total for the nation likewise showed a disappointing performance in February, the worst since a decline in October. Income trends are expected to improve, however, if only because of the recent approval of a 10-percent increase in Social Security benefits. The higher payments, retroactive to January, will begin to appear in June, but an approved increase in Social Security taxes will not take effect until next January. The nonfarm employment total in Texas during Feb­ruary confirmed the economic lethargy indicated by the personal-income data. The February employment total showed only fractional changes in comparisons with both the previous month and a year earlier. Unemployment levels were substantially higher than a year earlier, but they improved slightly from January. The average unemploy­ment rate for major labor markets in the state decreased from 4.0 percent in January to 3.9 percent in February. A year earlier the rate had been 2.9 percent. The national unemployment rate also improved in February, falling on a seasonally adjusted basis for the second month in a row to 5.8 percent as compared with the recent high of 6.2 percent in December. Unemployment rates among the various labor markets in Texas during February ranged from lows of 2.1 percent in the Austin SMSA and slightly higher rates in the state's largest labor markets of Houston (2.8 percent) and Dallas (3.4 percent) , to highs in the southern border areas, which reached over 12 percent in the Laredo SMSA. ESTIMATED PERSONAL INCOME, TEXAS lnde:r Adju1ted for Sea1onal Variation -1957-1959= 100 lOOL...~~~....i..~~~~._--:":"":"~_..~-:-::-:=-~"'-~~;:---'-~-;-:::-;-;::-~..._--:--==:::--_...,~-:-::-.::---'100 1965 1966 1967 1968 1969 1970 19711964 SOURCE: Quarterly measures ofTexas personal income made by the Office of Business Economics, U.S. Department ofCommerce. Monthly allocations of quarterly measures, and estimates of most recent months, made by the Bureau of Business Research with regression relationships of time, bank debits, and manufacturing employment. APRIL 1971 Inflation, of course, has contributed to feelings of dissatisfaction with the state of the economy. The rate of inflation has been unacceptably high for at least five years now and signs of the expected improvement continue to be conflicting and uncertain. Consumer price indexes have slowed their upward climb recently, but the rise of wholesale prices has accelerated. The national consumer price index in February showed the smallest year-to-year increase in two years and the smallest seasonally adjusted month-to-month increase since last August. Available con­sumer price indexes for Dallas and Houston show smaller rates of inflation than recorded for the nation as a whole. Over the most recent twelve-month period for which data are available, the year-to-year rates of increase in consumer prices were 3.1 percent in Dallas, 4.3 percent in Houston (as of January), and 4.8 percent for the nation.. Wholesale price changes tend to lead changes in consumer prices and, unfortunately, the seasonally adjusted rise in the national wholesale price index accelerated to an 8.4-percent annual rate in February from a 6-percent rate in January. The bright side of this development is the fact that most of the faster increase was in volatile farm prices while the industrial component showed only a slight increase. How­ever, announcements of steel price increases began to spread during March in response to the increase in demand for steel as a hedge against the possibility of a steel strike when labor contracts expire August I. Should these price hikes be maintained and spread to other steel producers and steel products the result would be a further significant upward pressure on industrial prices in general during the coming months. Developments in the industrial sector are both a reflection and an important cause of general economic conditions. The growth of industrial production in Texas slowed during 1970, and in the past few months the trend has been very nearly flat. As of February production in the state was only I percent higher than a year earlier. CONSUMER PRICES UNITED STATES AND DALLAS, TEXAS ltulu AJju•t~d for Sea10,u1l J'arialion-No111:,,.lttr 1963 =100) 135 130 125 120 "' l 10 l 05 l 00 ., 196.5 1966 1967 1968 1969 1970 1971 70 Industrial production throughout the nation has displayed a similar, although somewhat weaker, pattern. National in­dustrial output in February, seasonally adjusted, declined slightly from January production and was about 3 percent below the level of a year earlier. The manufacturing component of Texas industrial production in February was up fractionally from January because of the rise in nondurables manufacturing, but the manufacturing total was down slightly from February 1970 as a year-to-year decline in durables output more than offset a growth in nondurables production. Manufacturing employment in Texas continued to ease downward during February, but the seasonally adjusted average number of hours worked in Texas manufacturing rose about 1 percent in February. Texas manufacturing employment in February was down about 6 percent, or around 46,000 workers, from a year earlier. Most of these February and year-to-year decreases in Texas manufacturing employment can be explained by reductions in the defense-related aircraft and electronics industries, with most of it in the former. INDEX OF WHOLESALE PRICES, UNITED STATES 1957-1959=100 Percent change Feb 1971 Feb 1971 FebP from from Classification 1971 Jan 1971 Feb 1970 All commodities 119.7 3 Farm products 113.6 •• Processed foods and feeds 126.6 1 Industrial commodities 119.6 •• 4 Manufactured foods 119.9 3 p Preliminary. • • Change is less than one half of 1 percent. Source: Bureau of Labor Statistics, U.S. Department of Labor INDEXES OF PRICES RECEIVED BY FARMERS IN TEXAS (19HH914=100) Percent change Feb 1971 Feb 1971 Feb Jan Feb from from Classification 1971 1971 1970 Jan 1971 Feb 1970 All farm products All crops Food grains Feed grains and hay 281 206 198 156 272 206 192 151 280 186 175 144 3 •• 3 3 •• 11 13 8 Potatoes and sweet potatoes Fresh fruit 243 205 250 186 277 212 3 10 -12 -3 Commercial vege­tables 484 492 468 2 3 Cotton 173 174 154 1 12 Oil-bearing crops 305 309 258 1 18 Livestock and products Meat animals 402 551 381 507 434 580 6 9 -7 -5 Dairy products Poultry and eggs Wool and mohair 355 178 168 360 185 168 357 239 243 1 4•• -1 -26 -31 ** Change is less than one half of 1 percent. . Source: Statistical Reporting Service, U.S. Department of Agn· culture. TEXAS BUSINESS REVIEW A large share of the support for manufacturing produc­tion at the national level in recent months has been the result of high rates of steel production in anticipation of a possible steel strike in the summer and of high rates of automobile production to make up production lost during the strike at General Motors last fall. Not much further expansion in steel output can be expected , however, because mills are already producing at close to capacity. Automobile production schedules announced for the three months beginning in April would result in an output 6 percent higher than in the corresponding period of 1970, but the projected output does not appear to represent any seasonally adjusted improvement from current levels. An the demand for Texas oil. On the other hand, several industry spokesmen have recently cited continuing uncer­tainties about foreign supplies as the reason for expecting continued high levels of Texas oil production throughout the remainder of the year. Texas nonresidential investment trends as measured by permits for nonresidential building weakened in February. The seasonally adjusted index of nonresidential building INDUSTRIAL PRODUCTION TOTAL MANUFACTURES, TEXAS upswing for defense-related industry in the nation as a whole has been forecast for 1971 and 1972, but it is difficult to see any major upturn in most of the defense­related aerospace operations in Texas. Oil production has been an important sustaining force for industrial production in Texas for most of the period since early in 1969, but the state's seasonally adjusted levels of crude-oil production and crude-oil runs to stills de­creased in February. The Texas oil-production allowables for both March and April were held at the February level of 82.1 percent, but these allowables would indicate a further seasonally adjusted decline in Texas oil production as compared with February output. Some oil experts foresee greater stability in foreign oil supplies and a reduction in SELECTED BAROMETERS OF TEXAS BUSINESS (Indexes-Adjusted for seasonal variation-1957-1959=100) lnde7: Adiu:ited lot Stt11 1on11/ V111111t1on-1951-JU9zl00 ,.. ,.. 2'0 200 ISO 100 so Percent change Year-to­ date Year-to­date Feb 1971 average 1971 Index Feb 1971 Jan 1971 average 1971 from Jan 1971 from 1970 Estimated personal income 225.3p 225.4p 225.4 •• 2 Crude-petroleum production 124.4p 127.9p 126.2 3 5 Crude-oil runs to stills 138.7 140.9 139.8 2 3 Total electric-power use 276.6p 269.0p 272.8 3 6 Industrial electric- power use 250.4p 231.4p 240.9 8 4 Bank debits 323.5 321.4 322.5 1 8 Urban building permits issued 226.6 196.5 211.6 15 29 New residential 215.2 153.2 184.2 40 54 New nonresidential 254.6 266.6 260.6 -5 14 Total industrial production 181.3p 181.lp 181.2 •• •• Total nonfarm em­ployment 147.8p 147.3p 147.6 •• •• Manufacturing em­ ployment 146.9p 147.5p 147.2 •• -6 Total unemployment 109.2 110.0 109.6 -1 49 Insured unemployment 96.8 103.2 100.0 -6 69 Average weekly earn- ings-manufacturing 155.9p 155.2p 155.6 ** 5 Average weekly hours- manufacturing 99.5p 98.8p 99.2 •• P Preliminary. • • Change is less than one half of 1 percent. APRIL 1971 authorizations showed a decrease of about 5 percent from both January and the 1970 average. This was consistent with recent and expected national slowdowns in the growth of business expenditures for new plants and equipment. Such spending rose 5.5 percent in 1970, as compared with an increase of 11.5 percent in 1969. The presently projected increase for 1971 is 4.3 percent, with most of the increase expected to represent higher prices. It is generally agreed, however, that this projection, which is based on present business plans, will probably be exceeded if the upturn in business activity occurs as expected. One sector of the Texas economy that is definitely on an upswing is the homebuilding industry. The seasonally adjusted index of Texas residential building authorizations in February was 40 percent higher than in January, and the two-month total for January and February was 54 percent higher than a year earlier. Authorizations for both single­family homes and apartments rose in February, but apartment authorizations had sagged in January and single­family units showed a much greater year-to-year gain in the two-month period. A similar recovery in homebuilding is underway in the nation as a whole. The fuel for the recovery in homebuilding has been the general easing of credit conditions. Mortgage interest rates on conventional mortgages for new homes fell again in February for the fourth month in a row to bring the average effective rate down to below 8 percent and to the lowest level since July 1969. During March the bank prime lending rate was cut again, this time by .5 of a percent to 5.25 percent. The nation's monetary authorities have helped to maintain easy credit conditions through expan­sionary monetary policies, which have contributed to a BUSINESS-ACTIVITY INDEXES FOR 1WENTY SELECTED TEXAS CITIES (Adjusted for seasonal variation-1957-1959=100) Percent chaniO >O 19.57 19.511 19.59 1960 1961 1962 1963 196A 196.5 1966 1967 1968 1969 1970 1911 19.57 19.51 19.59 1960 1961 1902 1963 196• 196.5 1966 1967 1961 1969 1970 1971 NOTE: Shaded area• 1nd1cat1 p"riod• of decline of Iota! bu11ne11 l(tl.v1ty 1n the U111ted State•. NOTE: Shaded area• •nd•u.1e ~riod• of decline of tou.I bu11neu acDVlty in the Unued Stue1 SOURCE: Saud on bu1k deb111 reported by the Feder&! Reurve Banko( 0&1111 •nd adJ\llled for SOURCE: & u d on bank deb1t1 reported by the Feden.l ReHrve &nlr.of Dallu arwl &dJUlted !or 1.,11ona.l va.r11uona.nd chill nae• In the price level by the Bure111 of 8111ine11 Re1earch 1aa1on..l 9arlationand chang1u in the price level by 1he Bureau of 8111inou1 Re1e1rch FROM· 811rea11 of Bu•>neu Re1e1rch, The Univer11ty of Te>O '" 200 200 j .,. ' l~il v 7U I ~ ,,­ -~ . ·' '~ 19.57 19.511 19.59 1960 1961 1962 1963 \96A 196.5 1966 1967 1968 1969 1970 1971 NOTE' Shaded area• indicue per>od1 of d .. cllne of total bY1tne11 activity 11• the United State•. 1957 19.51 19.59 1960 1961 1962 1963 196' 196.5 1966 1967 1961 1969 1970 1971 SOURCE: Ba•ed on blnk deb•ll reponed by the Feden.I Re1.,rve Sanko( Oa.lla1and1d1uued for NOTE: Shld•d ....... 1ndicue period• or d1cllll4' of total b111in•H 1ctivity In th• United State1. •ta•onal var>&Uo11and chan1e1 l11th" price level by the Burea11 of 8\11111..11 Re1e;i.rch SOURCE: Ba11d on bl11k debiu reported by th• Ftd•n.1 Rt1trve 81nltof 01ll11 and adj111ted for FROM· 811re1u or 8111>ne11 Re1e1rch. The Unwer111y of Te><•• 1t Au111n. 1e11onal v1riation•11d chilln&•• inth1 pric1 l•v•I by the 811r••11 of 8111lne•• Re•e•rch FROM: 811re111 of 8111in1u R•1e1rch, The Un\v1r11ty or Te><•• at A111t1n. EL PASO BUSINESS ACTIVITY LAREDO BUSINESS ACTIVITY JSO 300 uo 200 150 100 " l ndu AdJutted lot Se11ona/ Va,.at,on-l9S7·l9SJiJOO 350 JSO 350 JOO 300 300 2'0 uo uo 200 200 200 150 150 150 100 100 100 >O ,. .. ~ 1----I-1~1-1-----I~ Im NOT£: Sh•ded are•• 1nd1cate period• of d1chn1 of total b1111ne11 •ctivity In the United Statel. SOURCE: Saud on blnk debit. rcporled by the Federal Ruerve B1nkof Oallu and &dJUlted for ltaional v1nationand chan&•" 111 the price level by !he 811re•11 of 811tlne11 Re1e1rch FROM: 9 11re1u of 8111111.,11 R.,1e1rch, Th" Un1ver111y of Te><•• 11 A111tln. APRIL 1971 l>O JOO 2>0 20 0 150 100 50 19.57 19.58 19.59 1960 1961 1962 1963 1964 196.5 1966 1967 19611 1969 1970 1971 NOTE: Shaded area• indicue period• of decline or total bu1ineu a(tivlty In the United Statu. SOURCE: 8&.aed on bank debiu reported by the Federal Re•trve Sank of Oell11 and adJlllted for ••••ona.lvar>1tion•ndchanat•lnth1pricelevel by the 811U&\I of B111>neu Re1..arch FROM· 8\ltH•l.I of 8111i11eu Re Hitch. The Univeruty of Te>