April 9, 1975
Business conditions in the Tenth District appear to be stabilizing. Purchasing managers are still paring inventories, but generally not because they expect further declines in sales. Some firms are going ahead with capital expenditures planned earlier, but there is no suggestion of decisions to increase such outlays more than had been budgeted. Weak spots in the region, such as in autos and construction, are being offset to some degree by strength in areas such as extractive industries and skiing. However, unemployment rates in the District states and metropolitan areas continue to show the uptrends evident in recent months. Agriculture has suffered from adverse price movements this winter, but this sector too may be bottoming out. Bank business is slow, and bankers are like other respondents in taking a "wait and see" position with regard to the tax-cut economy.
The Tenth District economy historically has enjoyed insulation from the severity of business cycles. This time around, however, unemployment rates in the Colorado Springs, Kansas City, and Omaha metropolitan areas have risen to levels near the national average. Further increases may follow, but businessmen foresee a leveling off or improvement in sales and production. Some price breaks are reported by purchasing agents, who still complain of shortages of certain items. One construction outfit that specializes in pollution control devices still cannot get the castings it wants, evidently because suppliers of castings have had their forging operations curtailed by pollution control requirements. Construction is especially weak in the District. While business executives cannot be characterized as pessimistic, they are not optimistic either—just cautious. For example, plans for expenditures on new plant and equipment have not been scaled up in light of recent events. The possible closing of the Rock Island Railroad worries some communities a great deal, but this appears to be the only dark spot in the outlook.
Led by lower prices for most of the major crops, the index of prices received by farmers declined 2 percent for the month ended March 15, the fifth monthly drop in a row. Compared to a year ago, farm prices were down an average of 15 percent. Since mid-March, however, the prices of most grains and livestock have rebounded sharply causing some observers to conclude that the 5-month decline may have bottomed out. The higher price levels for livestock are generally expected to be sustained into the summer, but the prospects for crop prices are more uncertain. If the expectation for bumper crops is fulfilled, some downward movement in price is likely.
While falling farm prices have been reflected in the wholesale price index, retail food prices have continued to rise over the last several months. However, the rate of increase has eased substantially from the unusually high rates experienced in 1974. In the months ahead, food prices will probably continue rising. However, there is reason to hope that food prices will be fairly stable during the second half of the year, in light of what has happened to farm prices since the beginning of the year, and favorable prospects for production in both the crop and livestock sectors.
Loan demand at Tenth District weekly reporting banks continued weak during the month of March. Real estate loans were especially weak, while business loans increased less than is seasonally normal. Bankers note no recent pickup in home mortgage loan requests, and a continued sluggish demand for auto loans. In addition, bankers report that credit card loans have weakened more than expected. Some bankers, however, expect loan demand to increase in the next several months, including an increase in the demand for real estate construction loans. Generally, bankers say that their loan policies are not becoming more restrictive. Total deposits declined recently at District weekly reporting banks but the decline was less than seasonal. Bankers express considerable uncertainty about the future growth of their deposits. Some feel that the Federal tax rebates might increase their time and savings deposits in May and June, but others do not expect to benefit to any significant degree.