June 11, 1975
Strong inflows of funds to Tenth District savings and loan institutions have continued, and mortgage lending activities have increased. Similar reports of strength in deposit inflows at commercial banks for both time and demand deposits were received in response to inquiries made of a number of Tenth District banks. Although overall loan demand continues to be sluggish, retail sales are apparently continuing the improvement which was reported in the May Redbook, and businessmen are expressing increased—if at times guarded—optimism over future economic prospects. With the stage set for a bumper wheat crop in 1975, farmers now voice concern over the depressing effect which such a crop might have on wheat prices. Despite increases in the index of prices received by farmers in both April and May, district farmers still expect a sizable decline in net farm income over that received last year.
Although a few of the S&Ls contacted reported small or moderate deposit inflows, such terms as "extremely good," "substantial," "very large," and "markedly up" were more often used by respondents to describe their deposit gains. Little enthusiasm was voiced over Treasury Secretary Simon's request to allow higher interest rates to be paid on savings bonds because of the likely competitive impact for their institutions. Apparently, tax rebate checks have not as yet been a significant element in overall deposit inflows, since most of the institutions contacted reported little evidence to the contrary. The strength in deposits has permitted S&Ls to increase their mortgage lending activities significantly, while at the same time enabling them to greatly improve their balance sheets by paying off their loans. Their liquidity positions, with few exceptions, are reported as substantially improved. Mortgage rates are generally expected to remain fairly stable over the next six months, and the attitudes of their business customers suggest that they are becoming somewhat more optimistic about future business prospects, although such optimism was not without some reservation. In part, their improved view of the future is traceable to continuing growth in retail sales in recent months.
The stage is set for a bumper wheat crop in 1975. Current estimates are that more than 1.6 billion bushels of winter wheat will be produced this year. The wheat condition is described as excellent throughout the central parts of Nebraska, Kansas, and Oklahoma following widespread rains during the past two weeks. Some hail damage occurred, but destruction was limited to isolated fields along a narrow band. Western portions of Nebraska and Kansas have recovered from a very dry winter and early spring, but the Oklahoma Panhandle remains very dry and will produce little dryland wheat this year.
Farmers are concerned about the depressing effect a large crop might have on wheat prices, since cash receipts from farm marketings have fallen sharply from year-ago levels. During the first quarter of the year, cash receipts nationally were 17 percent below the first three months of 1974. In Tenth District states, first quarter cash receipts fell 27 percent below the same period last year due to lower prices for both crops and livestock. The index of prices received by farmers increased in both April and May, but net farm income is still expected to fall about 20 percent below last year's $27.2 billion.
Bankers contacted in the Tenth District generally reported continued sluggishness in overall loan demand. Loans to farmers have displayed greater than seasonal weakness, while commercial and industrial loans still remain soft. Some of the bankers contacted, however, anticipated an improvement in the demand for loans in the near future. They noted that their customers were optimistic and that preliminary reports indicated retail sales volume in their local areas has risen in the last 30 days. Some bankers also reported that consumer loans for automobiles were up slightly and that recreation and tourist-related business in the western part of the Tenth District was experiencing strong demand.
Deposit inflows at surveyed banks were reported to be quite strong recently. Both demand and time deposits have showed greater than seasonal strength during the month of May. Most bankers contacted indicated they thought that the tax rebates had no significant effect on their demand or time deposit inflows. In view of the current strength in deposits and the lack of a vigorous upturn in loan demand, virtually all bankers contacted said their prime rates would probably drop slightly over the next few months.