June 11, 1975
Caution and conservatism seem to dominate the economic scene, according to this district's directors. Extensions of consumer credit have been level for the past six months, and delinquency rates have not, for the most part, risen sharply. Requests for credit appear to be correlated closely with needs. Production levels in the metals industries continue to decline as final demand continues to be weak in the user industries, mainly automobiles and construction. In some other industries, however, such as textile, chemicals, and farm machinery, inventories are no longer being liquidated. Because of lower prices, farm incomes are expected to decline this year; but crops were late because of the cool spring weather, and some shortages accompanied by price increases might develop as the year progresses. There appears to be little alarm about the immediate economic climate but little concrete evidence as well of a resurgence of demand.
Consumers have adopted and are maintaining conservative buying habits. People are shopping more at food stores in preference to eating out. In the Los Angeles and Portland areas, directors report that big-ticket items such as refrigerators and washing machines have been selling well but only as a result of aggressive dealer activity, with discounts and rebates not uncommon. Retail inventory liquidation will probably continue for another month while wholesale inventories appear to be at satisfactory levels. Dealers' stocks of automobiles are in good relationship to sales, but final demand remains soft. In general, the tax rebate has had no noticeable effect on retail sales.
All of this district's banking directors report that the trend in consumer credit over the past six months has been "flat" or stable. Although the number of car loans is down, the average loan size has increased. The director of a large West Coast bank states that "delinquencies have continuously dropped since the beginning of the year and are currently below normal levels for this time of year." Although this experience is not general, there appears to be no alarm about current delinquency rates. One director from southern California, however, reports revolving credit accounts as troublesome. "Balances delinquent two months or more, with no payment having been made for 30 days, are up approximately 82 percent over the year-ago figure, and the number of delinquent accounts is up approximately 71 percent over this same period." But even here, the situation has improved over the past two months.
On the business scene, inventory continues to be heavy in lumber, petroleum, and metals; but liquidation appears to have ended in the textiles, chemicals, and farm machinery industries. One director reports that the decline in steel production has not yet hit bottom; another indicates that "inventories in the hands of customers using aluminum products have returned to more normal levels, and it is expected that purchases of aluminum should start to increase in September." In Utah, copper continues to be stockpiled in the face of weak final demand. In the Pacific Northwest, new orders for commercial aircraft show some softening, but military business has improved with the production go-ahead on the airborne warning and control system (AWACS). In southern California, concern was expressed about the prospects for the aerospace sector of the local economy.
Most areas report heightened demand for mortgages in the past two months, but the majority of loan requests continue to be for existing properties. A resurgence in new home activity appears to be contingent on a lowering of mortgage rates which does not seem likely, at least over the next three months. Rates are now being quoted in the 9 to 9 3/4 percent range.
Lower prices are expected to affect farm incomes adversely this year. Crops are late due to the cool spring weather. Labor and supplies, however, are now readily available, and fertilizer prices have declined between 10 and 15 percent. One director commented that the dairy business was better in April than in any other single month during the last three years.
Although none of our business directors has experienced any difficulty in obtaining credit, there is some feeling that the banks are following an overly cautious lending policy where large loans are involved. One director expressed the view that "some banks are not assuming their responsibility in making loans available in their local community... . Banks are not exposing themselves to a normal loss ratio on loans—which deters growth."