June 14, 1972
With the possible exception of inventory loans, business loan demand at commercial banks in the Tenth District has weakened recently. Real estate and personal loan demand remains strong, however. Mortgage commitments and savings inflows to savings and loan associations continue well above their year-ago pace. Department store sales, especially of household durables, are still advancing vigorously. Prices generally are perceived by marketing men and purchasing managers alike to be rising moderately (as one said, at a "manageable" pace), but recent performance of meat-animal prices bodes ill for retail meat prices in the near future. Overall, respondents were almost uniformly optimistic about the business situation for the rest of 1972.
Tenth District bankers report little change in overall conditions of loan demand, with continued strength in real estate and personal loan categories partly offset by some signs of weakness in business loans. Strength in real estate loans appears broadly based, including both residential and commercial mortgage loans. Most bankers interviewed indicate installment lending is moderately strong and some report exceptional gains. Several Tenth District bankers single out credit card purchases as accounting for increased installment loans.
The recent weakness in business loans reported by most bankers interviewed is in contrast to the steady and strong growth in business lending in the Tenth District noted in the last three Redbooks. No clear pattern emerged in the reasons given for the decline; one Kansas City bank reports a large corporate customer has engaged in a public financing in order to reduce its bank indebtedness. Oklahoma banks, however, report strong business loan demand—for example, for expansion by oil drilling companies. Although overall district business loan demand appears to have weakened somewhat, several banks have recently experienced rising volumes of business loans to finance inventory accumulation.
Savings inflows to savings and loan associations in the Tenth District continue above those of a year ago, but appear somewhat smaller than earlier in 1972. Mortgage commitments remain generally strong, although some apprehension about possible overbuilding of multiunit structures was expressed by associations in Omaha, Oklahoma City, Topeka and Denver. Rates paid on savings are stable and rates charged on mortgages are generally reported as steady, though a tendency toward stiffening was noted by a Topeka correspondent and an Omaha firm suggested a slight softening there.
Stable or slowly rising prices since early this year were reported by a majority of purchasing managers surveyed. But more rapidly rising prices were noted by a manufacturer of construction-related products, a maker of electric cable and associated products and by a rubber-tire manufacturer (with reference to textiles and paper). Major retail establishments across the district report no sharp run-ups in their suppliers' prices, although increases are occurring. Some department stores report they are absorbing such price increases at the cost of a profit margin squeeze, but more indicate they are passing their cost increases on to customers.
Most purchasing managers interviewed indicate little if any significant change in the terms and conditions of the purchases they make. The only firms mentioning longer lead times were lumber and construction products firms and an electric cable manufacturer. One of these firms has increased inventories to compensate for extended lead time, but otherwise there were no inventory changes reported due to general economic conditions.
Department store inventories appear to be behaving about as desired by retailers, with several respondents noting inventories were running as planned, or budgeted, for this year. In no instance were inventories reported to be lower than desired.
Sales thus far in 1972 continue to be above those in the same period of 1971 in Tenth District department stores, with durable goods sales generally stronger than sales of nondurables. Nearly all sales categories showing special strength this spring were durables: building materials, furniture, major appliances and other home furnishings and bicycles and sporting goods. When areas of weakness in sales were mentioned, they generally were specific soft goods items. The major exception was men's apparel, an area of special sales strength in department stores in several district cities.
After declining slightly more than 2 percent in March and April, farm prices rose 3 percent during the month ending May 15, mostly on the strength of higher meat-animal prices. Slaughter steers have since registered further price gains while hog prices have remained steady to weak. Seasonal factors, brisk demand and some tightening in pork supplies point to a firm price structure through the summer, after which meat-animal prices may ease off. Thus retail meat prices, after showing some stability during the last two months, likely will face strong upward pressures over the next few months.
Wheat producers in Oklahoma and southern Kansas are making good progress harvesting the new crop. Yields are running somewhat higher than expected, particularly in those areas of Oklahoma that sustained drought and frost damage earlier in the season. In Kansas, opinions on wheat prospects are mixed, but a growing feeling is that total production may approach the record 312 million bushels produced last year.