October 10, 1973
Most of our Redbook contacts report another month of generally expansionary activity, clouded by only a few signs of downturn and substantial damage by heavy rains and severe weather. Although some categories of loan demand remain strong, total loan growth is showing some weakness. An increase in large CDs has boosted deposits in recent weeks, with bankers saying that expectations of lower interest rates are figuring importantly in their management of CDs. Recent floods have heavily damaged property and put district agriculture off schedule. Fuel shortages have not yet hurt agriculture significantly, although concern continues. New car dealers are enjoying another successful autumn of new model introductions, with big cars selling better than expected, but not as well as compacts. Managers of department stores doubt that retail sales will grow much next year, but most of them are enjoying the way in which each month this year comes in better than last year.
A very mixed picture of loan demand continues to emerge from interviews with Tenth District bankers. Some report that their volume of business loans is constrained only by their ability to raise money, while others notice a slackening of demand in recent weeks. Inventory financing is an especially strong source of demand, as price and sales increases necessitate carrying greater nominal values of inventories as suppliers tighten their normal credit terms. High farm prices also have pushed up the demand for loans to cover agricultural inventories. Pressures on rural banks from this source are being transmitted to correspondent banks in urban centers through requests for loan participations. Consumer installment borrowing is generally considered no stronger than seasonal, with loans for car purchases somewhat weaker than a year ago. Loans to financial intermediaries have increased, as savings and loans borrow to offset some disintermediation. Deposits have been growing rapidly over the last few weeks, with an increase in large CDs making up for a lackluster performance in consumer time deposits. Nearly all banks are attempting to shorten their CD maturities in anticipation of a decline in interest rates. Most say that the higher reserve requirements are having little or no effect on their CD management policies, but a few are increasing fed funds borrowings rather than locking in expensive CD money.
Heavy rains throughout much of the district have temporarily halted winter wheat planting and the fall harvest. Wheat planting is behind normal but few people seem overly concerned because, as one grain spokesman said, "Somehow farmers always get their wheat planted." In Kansas, considerable flooding over a wide area, accompanied by tornadoes, resulted in heavy losses of property, equipment, and crops. Soil erosion has been the major problem, with some fields losing most of the top soil that had been prepared for winter wheat. Much of the applied fertilizer was also washed away, and it may be impossible to replace because of the current shortage. While individual operators have suffered severe setbacks, the impact of the flood on total U. S. crop production—both now and next year—will be rather insignificant. This is reflected in the grain markets where very little nervousness exists. One comment was that if there is a fuel shortage, and if there is more wet weather, and if the wheat doesn't get planted and the fall crops harvested, then the "bulls" will take action and bid up market prices. But at the moment, the markets are relatively calm. Fears over a significant shortage of propane for agricultural purposes have been largely dispelled by the new mandatory allocation program. However, with allotments set equal to last year's supplies, some spot shortages are expected, as larger crops lead to larger propane requirements. There continues to be some concern over gasoline supplies, but the problem is not regarded to be as serious as the propane situation.
Rising gasoline prices and closed service stations do not seem to have hurt sales of new model autos. Even in Denver, where the gasoline shortage has been especially acute, new cars are selling as well as they did last year. Compacts are the hottest, but some dealers report that their full-sized models are being well received. Most dealers hope that this year will be as good as last year; few expect it to be better.
Department store managers throughout the district say that their sales are continuing strong. Dollar sales at all reporting stores rose this September over last September, and increases ranged up to 15 percent. Sales of durables as well as nondurables apparently are still increasing, although a couple of store managers expect this happy circumstance to end soon. Most managers expect a good fall and Christmas season. Looking ahead to next year, opinion is divided. Some store managers see sales rising at about the rate of inflation, while others expect slower growth. Inventories are being kept at last year's levels, or slightly above. While the lead times required by suppliers are still very long for some items, the store managers say that their inventories are "as budgeted."