August 13, 1975
Retail sales in the Tenth District continue to show improvement, with durable goods particularly strong. Impulse buying is sharply down, as consumers either shop for bargains or seek quality at the top of the line. Inventories are now reported as balanced, and expectations are for a moderate expansion in both inventory buying and retail sales. Automobile dealers also report an improvement in both sales and inventories. While the production of winter wheat appears to have met expectations for a record harvest, corn conditions in some areas are rapidly deteriorating due to extremely dry weather. Loan demand at Tenth District commercial banks continues to decline as the gap between commercial paper rates and the prime rate widens.
Retail sales in the major urban areas of the Tenth District have continued to improve since May. Sales managers generally report that they are "very pleased with the rebound in sales" and that sales are "better than expected". Two major department stores note, however, that the Kansas City area is not doing so well as other Tenth District locations. Durables in general and furniture in particular are mentioned as showing marked sales increases. All retailers surveyed stressed that people are shopping for price and concentrating on necessities. Little "impulse buying" was noted. One knowledgeable source stated that people seem to be buying in two markets. The first market is extremely responsive to sale items, though discounts of 20 to 30 percent are now required to draw in the traffic. The second market is buying top-of-the-line goods, shopping for quality instead of price. "There seems to be a lack of buyers in the middle areas", he reported. All respondents foresee a slow and steady increase in sales as more and more people get back to work.
Inventories are generally reported as "balanced", "at the right level", and "in the best shape they've been in four or five years". Plans call for a modest inventory expansion by retailers for the rest of the year. One interesting development, however, was stressed by the majority of respondents. Whereas last year vendors were responding quickly to new inventory orders, deliveries are now lagging. Two respondents expressed concern that some shortages may develop, that they could not respond to a rapid increase in sales, and that the situation might not correct itself by the holiday season, leading to a below-potential sales volume.
Tenth District automobile dealers all reported either "greatly improved" or "steadily improved" car sales in May, June, and July. While each dealer stressed a "bread and butter" or "hot" selling model, there was no general agreement on the size or type of car which was doing especially badly. Sales expectations for the remainder of the calendar year were basically for a steady increase in line with a slow economic recovery. Most auto dealers reported balanced inventories, though some added that they had plenty of cars to sell, while others stressed a shortage of their "hot" selling models. A major observation was that consumers now seem to be resigned to higher fuel prices. Uncertainty appears to be disappearing and is being replaced by cynicism.
Production of winter wheat in the Tenth District appears to have met earlier expectations for a record crop, but a larger than normal proportion of yellow kernels has decreased the export value of this year's crop. The wheat marketing year has gotten off to a slow start, as farmers seem determined to hold their wheat until the local price reaches $3.50 to $4.00 per bushel. In general, wheat farmers appear to be in a financial position that will allow them to delay marketing this year. Corn conditions in western Missouri, eastern Kansas, and eastern Nebraska are deteriorating rapidly due to extremely dry weather. Corn conditions throughout the remainder of the District are about normal, but some areas have reported insect problems.
The smallest number of cattle on feed for any July 1 since 1967 was just reported by the United States Department of Agriculture. Placements continue to exceed year-earlier levels, however and, if this trend continues as expected, the number of cattle on feed should about equal year-earlier levels by the end of 1975. The midyear cattle inventory showed a 1 percent increase in cattle and calves on farms since July 1, 1974. This is a smaller than expected increase, and is good news for cattlemen since it now seems possible that the buildup in cattle numbers may be halted by the end of this year. Additional good news for farmers came with the announcement that prices received rose 3 percent during the month and ended July 15, the fourth consecutive monthly increase after sharp previous declines.
A survey of Tenth District bankers revealed a decline in the demand for loans, including a slack demand for business loans, as the gap between commercial paper rates and the prime rate widened. These results were supported by data for all Tenth District reporting banks showing that the volume of most types of loans increased less than average, or fell contraseasonally, during July.
The exceptions to this pattern were loans to farmers, which were unchanged during July on a seasonally adjusted basis, and consumer installment loans, which rose slightly more than seasonally during July. Total deposits and large negotiable certificates of deposit (CDs) at Tenth District reporting banks also fell more than the seasonal average during July. Bankers contacted in the survey indicated sharply differing flows of CDs, however, with some reporting substantial runoffs and others indicating that they had attracted more CDs.