May 17, 1972
Consumer spending strength now appears to be widening to include stepped-up purchases of some durables, particularly furniture, according to reports received from large department stores in the Tenth District. Reflecting this improved sales picture, inventory investment by retailers has picked up. Similarly, manufacturers of consumer durables in the District report that they too have increased their investment in inventories of both raw materials and finished goods in response to an improving sales picture. Commercial banks in the District continue to report expanding consumer installment and real estate loan demand, and the improving business loan demand alluded to in earlier Red Books now seems more firmly established. In the agricultural sector, a good crop and livestock picture, buttressed by strong consumer demand, augurs well for Tenth District farm income in 1972.
Responses from large department stores with outlets throughout Tenth District states appear to confirm that sales to consumers are strengthening. While sales of soft goods remain strong, the scope of consumer demands now has widened somewhat to include more purchases of durables as well, particularly furniture. Present sales of furniture are reported as very strong, with expectations that this trend will continue on into the fall months. Accordingly, these retailers have increased their purchases for inventory, with one store reporting a 6-month delivery lag on new furniture orders. When queried as to whether future price considerations had a significant bearing on stepped-up inventory investment, retailers were nearly unanimous in expressing the view that present and expected future sales strength was the main justification for increased inventories, rather than any present versus future price incentives.
Discussions with District manufacturers of various types of consumer durable goods elicited the view that business sales have clearly strengthened over earlier months. With production rising in response to increased sales, and with growing expectations of future sales strength, manufacturers' inventory behavior also is showing more buoyancy. Purchasing managers continue to stress that stringent inventory controls remain in effect in their respective companies, but an improved sales situation for many has dictated an increase in inventory investment. Manufacturers of small household appliances, radio and television sets, wood furniture, and cabinets were nearly uniform in noting that improved sales, rather than any present price advantage vis a vis the future, had dictated growth in inventories of both raw materials and finished goods. One manufacturer of electrical housewares stressed his concern over gaining extended lead time as sales improved in the months ahead. Wood furniture and cabinet manufacturers were adding heavily to inventories of raw material, but were constrained in their inventory accumulation by increasing difficulty in securing raw materials, particularly wood. Nevertheless, they indicated that they would persist in their efforts to build up their stocks in anticipation of continued growing strength in sales.
Loan demand at Tenth District banks continues to expand. Consumer installment and real estate loans remain areas of steady growth. The improvement in business loan demand noted in the last two Red Books appears established. Furthermore, the gains now appear to be coming from national as well as local accounts. This is attributed to a narrowing or elimination of the spread between the local prime rate and the national rate. Demand from local sources remains strong, supported in some cases by special factors. Denver banks, for example, report sharply increased borrowing by local customers, due in part to construction activity connected with the 1976 Olympics.
Demand deposit inflows at District banks were unusually heavy in April, while some moderation occurred in inflows of consumer-type time and savings deposits. However, bankers contacted appear convinced that time accounts will continue to contribute to future deposit expansion. Large CD's have declined in recent weeks, but at least one large bank plans to begin active solicitation of CD money in response to heightened loan demand.
With the exception of Western Oklahoma and the southwestern part of the Tenth District, which are suffering from drought, crop prospects appear good at this time as soil moisture is reported as adequate- to-surplus over most of the District. In general, wheat condition is rated as good, and maturity is ahead of last year. The number of cattle on feed on April 1 was up 14 percent in District states and 9 percent nationally, compared with a year ago; and current indications are that beef supplies will continue above 1971 levels throughout the remainder of the year. Continued strong consumer demand for livestock products, combined with the present crop outlook, indicates that District farm income may reach a new record high in 1972.