February 12, 1975
A number of Tenth District retailers report disappointing Christmas and January sales and express rather muted prospects for any significant improvement in the immediate months ahead. The auto market, however, has responded to the rebate program with dealers reporting sharply increased floor traffic and sales. For District farmers, both total cash receipts and realized net income were down for the year 1974. In addition, the bankruptcy of American Beef Packers has caused some financial ripples in the District. Reflecting the general weakness in the economy, a number of large District banks report a decline in total loans during recent weeks, with weakness in consumer, farm, and business categories. During this same period, deposits also moved sharply downward.
In a follow-up to our pre-Christmas survey of department store sales expectations, a number of the District's large retailers reported that sales had generally fallen short, with durables particularly weak. This pattern has continued into January, and sales forecasts for the months ahead have been trimmed back. At the same time, auto dealers report very good response to the current rebate program. Floor traffic is up sharply, and sales have responded, particularly for the rebated models. Many dealers report that sales of non-rebated models, including full size autos, have also picked up noticeably. Dealers express the view that the likelihood of higher fuel prices should sustain interest in the smaller cars, but would still like to see the rebate program continued.
Although farm prices trended downward in 1974 (the December average was 4 percent below the year-earlier figure), the average for the entire year was 6 percent above 1973's average. These higher average price levels generated an increase in farm income of about 7 percent for the nation in 1974. Crop receipts were up nearly 25 percent, but livestock receipts—reflecting the sharp drop in prices—fell 8.5 percent. In the District, total cash receipts declined about 2 percent in 1974 because of the relative importance of livestock as a source of income. A 15 percent drop in livestock sales more than offset a 20 percent gain in crop receipts. Due to lower government payments and sharply higher production costs, realized net income for both the Nation and the District also was down rather significantly in 1974.
The bankruptcy of American Beef Packers (ABP) has caused some financial ripples in the District. Several cattle feeders have not been able to meet their financial obligations with credit institutions because ABP's outstanding bank drafts have been frozen until the company's difficulties are resolved. One slaughter plant has been allowed to resume operations on a custom basis, and it is hoped that once the firm is reorganized all outstanding commitments will be honored in full.
A survey of large Tenth District banks reveals a decline in total loans during recent weeks substantially below the expected seasonal rate, with weaknesses reported in business, farm, and consumer loans. The decline in business loan demand is attributed to an overall sluggish economy and to a reduced demand for inventory loans as firms attempt to avoid undesired inventory accumulations. Although total farm loans are down throughout the District, Nebraska banks report a strong demand for grain, fertilizer, and feed loans. The impact of automobile rebates on consumer installment credit is negligible, but many banks feel the impact is too early to properly assess. Real estate portfolios remain relatively inactive. On the supply side, some banks now feel they are in a position to accommodate high-quality loan requests—especially from established customers.
Deposits moved sharply downward over the last few weeks. Corporate demand deposits have declined considerably, in part reflecting a runoff of deposits built up at year-end for window-dressing purposes. Some banks attributed the decline to the payment of current tax liabilities. In addition, interbank balances have fallen due also to an unwinding of year-end window-dressing. Time deposits increased sharply in response to growth in large nonnegotiable CD's, Oklahoma banks, which issued a sizable volume of CD's to local governmental depositors, are apparently encouraging their customers to take the nonnegotiable issues. The Oklahoma banks indicated that, since their nonnegotiable CD's have 365-day maturities instead of 360-day maturities for negotiable CD's, they can reduce their effective interest costs by issuing the nonnegotiable CD's.