February 11, 1976
Tenth District retail sales continued strong during the month of January and are expected to show steady growth at least through the summer. Area automobile manufacturing plants are expanding employment and Ford and GM dealerships reported both excellent sales and an optimistic outlook. Chrysler and AMC dealers, however, were not doing well. Although there is still concern about wheat, generally positive crop expectations, expanded cattle placements, and increased hog farrowings all point to reduced pressure on food prices during 1976. Tenth District bankers, however, reported mixed views on the strength of business loans, noting that local businesses were exercising caution in inventory rebuilding. Savings inflows, on the other hand, continued strong.
The strong January retail sales reported in the national press were also evidenced throughout the Tenth District. While two large stores in Denver noted a falloff at the end of the month, all respondents indicated that January sales ranged from "good" to "super." The majority of stores reported that improvement was strong "across the board." Big-ticket items were said to be strong in two stores but weak in two others. On the inventory front, no problem areas were mentioned, and several respondents stated they were now in excellent shape going into spring. Only one Denver store reported any difficulty in obtaining merchandise from suppliers. Citing improved consumer confidence, all interviewees looked forward to a strong spring and summer. Consumers were expected to emphasize quality in their purchases rather than price.
Automobile manufacturing plants in the Kansas City area reported a favorable outlook for 1976. Starting March 1, the remaining 1,900 GM workers laid off last year will be recalled, representing a $26 million increase in annual payroll. The Ford plant outlook is not as bright, with a tentative shutdown scheduled for the week of February 23, depending on sales. Ford still has 519 employees on indefinite layoff.
On the retail side, however, both Ford and GM dealers throughout the Tenth District reported excellent sales and expectations. While all models are selling well, Ford is doing best in large cars and Chevy in smaller models. Buick and Pontiac are also doing well. On the other hand, both Chrysler and AMC reported strong December sales, but very sharp falloffs in January to below 1975 levels. Chrysler sales are concentrated on Volare and AMC sales on Pacer. All dealerships reported that most units sold were fully-equipped and that inventories were generally good though some shortages existed in high-demand models.
Recent reports on agricultural conditions have bolstered the prospects for greater stability in food prices in 1976. Farm prices have been quite sluggish for the last five months, owing to large harvests last fall and a seasonal increase in red meat production during the fourth quarter of 1975. For the month ended January 15, prices received by farmers dropped 0.5 percent following a modest increase in December. Given the evidence of increased cattle placements in feedlots during the fourth quarter, together with the beginning of an expansion in hog farrowings, meat supplies in 1976 promise to be large enough to offer some stability to retail prices—assuming that the farm-to-retail margins do not widen significantly. The winter wheat situation in the District is still hanging in the balance due to the lack of moisture. Several stories of farmers abandoning the crop, taking steps to prevent wind erosion where there is no wheat, and applying for disaster payments have been reported in the news media. However, a large crop is still possible if the weather cooperates over the next few months. And, if crop producers follow through with their intentions as reported in January, the production of most crops in 1976 will likely be large enough to restrain any sharp rise in prices. In fact, given the information on probable carry-over stocks next summer and fall, grain prices could slide rather significantly should 1976 production levels be of bumper proportions.
Tenth District bankers contacted had mixed views of business loan strength. Four banks indicated January declines in business loans while three reported strong gains. Shifting of national accounts was mentioned by several banks as a major reason for either increased or decreased loan demand. Only one bank reported strong gains in demand from local customers—primarily from agribusinesses and utilities—while several mentioned that local businesses are exercising caution about inventory rebuilding. Credit card sales are still up seasonally, and a few banks reported increases in auto loans.
Savings inflow continues to be strong in both the consumer and the corporate areas because of low CD and Treasury bill rates. Some outflow is expected within the next week because of the new Treasury issue. Banks are continuing to run off certificates of deposit.