September 13, 1972
The strength in consumer spending which was reported in the most recent GNP data does not appear to be uniformly reflected in the performance of a number of Tenth District large department stores. Reports of strong recent sales were less frequent than were reports of only modest to little improvement, with poor weather or discount competition usually cited as reasons. On the price front, retailers were about equally divided in their reports of further price increases from their suppliers, although even those who have experienced such increases reported that both competition and price controls have served to restrain the degree to which they could pass these on to their customers. During the month ended August 15, the index of prices received by farmers advanced to a new high, a factor which should underscore the sharp rise in Tenth District farm income reported in the last Red Book. However, the softness that has prevailed in slaughter cattle markets up until last week may dampen some of these gains despite the strong uptrend in grain prices. Loan demand continues strong at Tenth District member banks, and the general consensus of those banks interviewed is that the present level of loan demand will hold steady or increase somewhat over the remainder of the year. Unlike the near consensus which emerged last month in conversations with Tenth District manufacturing firms reporting much improved sales, discussions with a number of large department stores in the Tenth District elicited mixed opinions. With one exception, all respondents reported that sales were up, but the degree of recent improvement varied from city to city. Generally speaking, the Kansas City and Oklahoma City sales picture was stronger than was the situation in Denver. In Omaha, a large national outlet reported very strong sales while a local independent reported sales below a year ago-the only respondent to do so, citing strong competition from new shopping centers which has hurt their sales.
Strength in furniture sales figured prominently in most reports of improved overall sales. Inventory behavior at the retail level still remains conservative. No stockpiling appears to be in evidence, as inventory investment is reported keeping pace with the current level of sales. Most respondents expressed optimism regarding the prospects for sales during the remainder of the year. When asked about price increases from suppliers, the replies were about evenly divided among those who reported further price increases and those reporting that their suppliers were holding the price line. Even in those cases where supply prices had been raised, those firms indicated that their ability to pass these increases on to their customers was constrained by their local competitive situation or by current price regulations.
The index of prices received by farmers advanced to a new high during the month ended August 15. Since then, grain prices have been generally stronger-reflecting large sales to the Soviet Union as well as growing demands elsewhere-while livestock prices have averaged lower until very recently. Slaughter cattle prices, in particular, have been unusually soft, falling almost $5 per hundredweight from early July to late August with only a moderate increase in slaughter rates. Cattle prices so far in September have been stronger. Although cattle prices will probably remain reasonably stable, showing perhaps some firmness between now and the year-end, hog prices are expected to decline seasonally from the near-record high levels that currently exist, as the volume of marketing increases this fall and winter. Thus, the recent abatement of wholesale meat prices, together with the prospects for some further decline, likely will remove most of the pressure on food prices during the remainder of the year.
Loan demand continues strong at Tenth District member banks. Among larger banks, where detailed data are available, demand is especially strong for business real estate and consumer installment credit. Tenth District weekly reporting bank statistics show this strength, and it is confirmed by interviews with banks throughout the District. Several banks report increases in loan commitments particularly to finance companies. In Kansas City, grain sales to Russia have also produced increased commitments. Commitments for real estate construction, agriculture, and international trade are also reported to have increased at one Denver bank. In response to the strength in loan demand, some banks have instituted changes in lending policies. A respondent in Tulsa and one in Denver report preferences for lending at shorter maturities. Another Denver bank is attempting to hold real estate loans at their current levels in order to increase loans in other lines. The general consensus of those banks interviewed is for the present level of loan demand to hold steady or increase somewhat over the remainder of 1972. In order to obtain additional loanable funds, many District banks have also become more aggressive in their attempts to attract CDs. In one instance, a bank in Oklahoma City has set its rates above those obtainable in money market centers. While the aggressiveness partly reflects the strength of loan demand, it is also in response to weakness in demand deposits that has produced outflows in total deposits.
With only one exception of the banks contacted, the prime rate now prevailing is 5 1/2 percent with about half of the respondents having raised the rate in the last week of August. The lone exception carries a prime rate of 5 3/4 percent which is justified on the basis of local loan demand.