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THE BUSINESS SITUATION IN TEXAS
John R. Stockton
Business activity in Texas during January looked better
than average, but there were some spots that cause a
certain amount of uneasiness. The index of business
activity, based on debits to individual demand deposits
and adjusted for seasonal variation and changes in the
price level, increased 5 percent from December. The gain
in this barometer should be interpreted as an indication
that business is still improving, but some segments of the
economy are not so definite in their indications.
In the first place is the fact that of the twenty cities
for which an index of overall business activity is com-
puted, eight declined and two were unchanged from
December. The fact that only one half of the cities reg-
istered an increase suggests that the improvement shown
by the state index was not as uniformly distributed as
would be desirable.
One of the factors that is beginning to create some
concern is the slowing down in consumer spending all
over the country. The seasonally adjusted retail sales for
Texas increased 8 percent over the December level, and
sales of nondurable-goods stores were reported to be up
10 percent. Although sales of durable-goods stores in-
creased only 5 percent, this performance appears to be
satisfactory. On a national scale also retail sales rose
from December after seasonal adjustment, but retailers
do not consider this grounds for a celebration. Again con-
sumers are saving more than 7 percent of personal income.
This is considered an abnormally high rate of saving, and
the January sales rate, both for Texas and for the United
States, is still below that of midsummer 1968. Probably
the duration of the sales slump last fall did more to
cause worry than the actual level of retail sales. It should
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also be remembered that since prices have been rising
rapidly and since sales figures are not adjusted for the
change in the price level an increase in dollar volume
does not mean an equal increase in sales activity. Sav-
ings, on the other hand, have increased because personal
income has been increasing faster than consumer spend-
ing.
Some of the uncertainty concerning the immediate fu-
ture of business grows out of the restrictive credit policy
that is now in effect. Money-market indicators reflect a
shift in policy of the Federal Reserve from the relative
easing of credit restraints from September to December of
last year to a squeeze on the money supply in January
and February of this year. During the last four months
of 1968, the money supply was expanding at an annual
rate of nearly 8 percent, which was considerably in
excess of the long-run average. This liberal policy ap-
pears to be putting pressure on the ability of banks to
make loans. Whether the pressure can be expected to
continue is an important question at the present time.
Last year the controls on credit were eased and were
mainly responsible for a resurgence of a speculative
psychology. The impression is gaining ground that this
time the Federal Reserve authorities are really going to
slow things down. The new administration has given no
definite basis for believing otherwise. One theory held
by economists is that the present restraints will be
maintained at least during the first half of the year, and
then activity might be allowed to accelerate in the sec-
ond half. As is usually the case, agreement here is not
complete, and some analysts look for a continuation of
the rise until midyear, and then look for a decline in the
TEXAS BUSINESS ACTYITY
Index Adjusted for Seasonal Variation-197-19591O
1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969
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NOTE: Shaded areas indicate periods of decline of total business activity in the United States.
SOURCE: Based on bank debits reported by the Federal Re serve Bank of Dallas and adjusted for
seasonal variation and changes in the price level by the Bureau of Busines s Resear ch.
MARCH 1969
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