July 18, 1972
Record high cattle prices, a near record wheat harvest with prospects for improved world prices, and generally favorable crop and livestock prospects are helping this District's important agricultural sector contribute to regional economic growth. Summer tourists appear likely to continue their habit of spending more than last year, just as winter sports enthusiasts did this past season. Loan demand continues strong and is expected to remain so, but bankers foresee only a moderate increase in interest rates during the coming months. Businessmen seem unguardedly optimistic about the economy, pointing to construction activity as a key indicator.
Recent rains, while adding valuable moisture for pastures and growing crops, have had a disruptive effect on the wheat harvest. Though virtually complete in Oklahoma—where yields averaged somewhat better than expected—the harvest in Kansas has slowed with considerable wheat still in the fields. Because of the delays, total production in the nation's leading wheat state may fall a little short of earlier projections. Nevertheless, barring further delays, the 1972 crop will rank among the largest on record. Generally, the prospects for the other cash crops in the District are excellent. The recently announced sale of grain to Russia undoubtedly will provide firmer world grain prices than otherwise would have prevailed.
Meat prices at both the farm and retail level again have been attracting national attention. Since early May, slaughter steer prices have risen from about $34.50 per hundredweight to more than $40, despite a sharp increase in beef production in May. Hog prices spurted more than 20 percent to reach the $30 mark, and with farrowings remaining low the longer-run price outlook continues strong. These price developments contributed heavily to the recent increase in the wholesale price index and likely will create further upward pressures on the consumer price index. In the months ahead, cattle marketings are expected to remain moderately above year-earlier levels, but prices likely will remain strong due to unprecedented demand not only in the United States but throughout the world. The lifting of import quotas on meats is not expected to result in significantly larger meat supplies, and import supplies could even decline providing meat prices in world markets do not weaken substantially. Both hog and slaughter cattle prices, other than for seasonal changes, can be expected to remain strong during the remainder of the year.
Attendance at popular Tenth District recreation areas this summer promises to continue the upward trend of recent years. Although cool weather and a new daily camping fee may have discouraged some visits to Yellowstone National Park, most popular tourist areas report larger crowds than last summer. Contacts in Colorado, Wyoming, and New Mexico say that businesses catering to vacationers are doing very well and total spending is up considerably. In spite of the increased popularity of camping, the motels and lodges are doing well. Gasoline sales have increased sharply. Some respondents feel that vacationers are still avoiding expenditures on luxury items such as expensive entertainment and souvenirs. On balance, however, businessmen expect this to be "an excellent tourist season."
Tenth District bankers report continued strong loan demand in recent weeks. Real estate and consumer installment lending are still areas of steady growth, and higher feeder-animal prices are boosting agricultural loan volume. Business loans seem to have firmed after some weakness in May; national accounts are still not a significant factor, but strength in construction activity and consumer spending is maintaining local credit demand. Most respondents foresee little slackening in loan demand during the second half of the year, although real estate and construction loans may soften in some locales where overbuilding—particularly in the multi-family sector—is in prospect.
Several bankers report rather sluggish demand deposit growth in June, but most report further moderate inflows of time and savings deposits. Deposit inflows—especially in the time and savings category—have been strong enough in recent months to provide adequate funds for lending needs. Most banks contacted have not aggressively pursued large CD money of a very short-term nature. While one banker is worrying about disintermediation, most respondents feel that with the funds they have now and reasonable inflows in coming months, there will be no great difficulty meeting loan demand at interest rates not too much higher than current levels.
Directors say their conversations with other businessmen indicate almost no remaining clouds of economic pessimism. Among the commonly cited indicators of vigor, major construction projects are emphasized. The most recently announced of these include a $30 million fertilizer plant in Oklahoma and a major expansion (cost not disclosed) of the GM Assembly Plant near Kansas City. The president of a large corporation says that the Price Commission setup is becoming a nightmare—that he has five people working full time on prices and is considering hiring another to work in Washington keeping track of things.