Increased volume of crop marketings and higher livestock prices are boosting farm income and the agribusiness sector of the Tenth District economy, despite the negative impact of the dock strike on grain prices. Retail sales during the early part of the holiday season have been moderately stronger than last year's pace in the major metropolitan areas of the District. With demand deposits falling more than seasonally in November and business loan demand strengthening, bankers are resisting further commercial loan rate reductions. Mortgage rates, however, have eased in recent months, including a marked decline in late November in several District cities. Savings and loan institutions—still enjoying strong savings inflows—and builders are optimistic on the outlook for construction.

District cash receipts from farm marketings for the first three quarters totaled $5.9 billion—4 per cent above the
year-earlier figure. Fourth quarter receipts should show a good advance over last year, with most of the increase reflecting sharply higher prices for livestock. Lower wheat and feed grain prices will probably more than offset an increased volume of marketings—pushing crop receipts down. Since the livestock sector accounts for roughly two-thirds of the District's farm income, retrenchment of crop prices and the disruptive effects of the dock strike have not seriously depressed the aggregate farm income picture. Large quantities of wheat were shipped abroad before October 1 in anticipation of a further widening of the dock strike. Feed grains and soybeans—the two commodity groups most affected by the strike—are relatively less important in the District than elsewhere.

Several agribusiness firms were contacted about their 1971 sales and also their prospects for next year. Suppliers of fertilizers, pesticides, and grain-storage equipment reported good years—attributing their gains largely to the sharp increase in crop acreage. But two feed manufacturers indicated that sales have been slipping, although they expect a modest improvement for the year as a whole. Farm machinery sales—which had been sluggish for three years—spurted in the third quarter and are continuing to run well above year-ago figures. Bumper crops and anticipated tax credits were offered as explanations. Agribusiness firms were generally optimistic about sales prospects. The consensus was that prices would show little, if any, additional upward pressure—although the manufacturers of farm implements and grain-storage equipment reported that some increases were likely in view of higher steel and other costs.

Retail sales throughout the District appear to be running somewhat stronger than a year ago, although only a few reports suggest a real loosening up by consumers. Most officials of the major department stores surveyed are cautious in discussing their holiday sales to date, using such terms as "satisfactory," "disappointing," and "no great shakes." Some specialty and jewelry shops report substantial sales increases, but no movement toward expensive items is discernible in department stores. Sales of wine and liquor by one chain of stores were described as only slightly improved over last year's mediocre levels. Meanwhile, ski areas are setting new attendance records.

District commercial banks report a more than seasonal fall-off in demand deposits during November as offsetting considerable growth in consumer saving deposits. A large November volume of business loans contrasts with the weak pattern of other recent months. Rate structures were lowered in early November to a level consistent with a 5 1/2 per cent prime or base rate; the strength of loan demand at that rate has stiffened resistance to further downward movement. Unlike a month ago, bankers now say they would resist going below their own stated prime rate even on national accounts.

In the past two or three months, supply-demand conditions of savings and loan associations have resulted in a gradual easing of mortgage rates and terms. Net savings inflows are down slightly but continue strong. The savings and loan associations appear to have benefited in November from some reintermediation on the part of savers whose high-yield Treasury notes matured.

Marked declines in conventional mortgage rates occurred in late November in several cities. Points charged on FHA-GI loans also have declined. Most respondents expect further declines in mortgage rates in the next 90 days; the general expectation appears to be of a bottoming out in the 7 1/4 to 7 1/2 per cent area on conventional 75 to 80 per cent of appraised value loans. Many savings and loan institutions make 95 per cent loans at 8 to 8 1/4 per cent, but use of such mortgages varies greatly and the instruments are not viewed with enthusiasm by lenders.

Residential construction remains healthy in the District. Builders look toward strong sales in the spring, particularly of single-family dwellings. In most cities, the outlook is for construction activity in the first half of 1972 to equal or exceed the average 1971 experience. Unless consumer spending greatly accelerates and produces an extreme decline in savings inflows, the savings and loan associations expect to be able to cope with mortgage loan demand in the months ahead.