July 14, 1976
Residential building in the Tenth District, especially of single-family homes, has been very strong through the first half of 1976, and builders are optimistic about the remainder of the year. Cash inflows to savings and loan associations continue to be heavy, and loan rates are expected to remain stable through year's end. Tourist and recreation business in the District's mountain states has also been very good. Wheat harvest in the District is proceeding satisfactorily, with total production now estimated to be significantly greater than originally expected. District commercial banks report strong business loan demand in June.
Builders and home builders' associations across the Tenth District report a good year so far in residential construction activity, especially for single-family homes. There is more activity in custom-built homes than in speculative building, with some scattered reports of increasing stocks of the latter. Multi-family unit construction is generally reported as stagnant, except in New Mexico. Most builders remain optimistic for the rest of 1976, and some stretch their optimism through the first half of 1977. A few respondents expressed some fear of overstocking of houses by year's end, especially in Colorado, and most have a fear of rising mortgage costs later this year.
According to spokesmen for Tenth District savings and loan associations surveyed, rates on a typical 80 percent conventional loan now range from 8.75 percent to 9.5 percent, with 9 percent the most commonly reported rate. Most respondents expect rates to hold at the above levels, at least through the end of 1976. Cash inflows have been very strong in early July, and loan demand was generally characterized as strong. Several reporters noted that their firms had experienced withdrawals of funds that seemed clearly intended for purchase of consumer durable goods, especially new automobiles.
The tourist and outdoor recreation business in the Rocky Mountain states of the Tenth District has been very good so far this summer, with the peak months yet to come. There are more tourists, spending more money, than in 1974 and 1975. One respondent described the situation in Wyoming as "back to normal—back to the pre-oil embargo days." All states report a greater proportion of campers, a trend toward all tourists staying in one area longer and spending less time on the road, and a spending pattern that includes more spending on gasoline but saving elsewhere.
Farm prices have been exhibiting strength in recent months despite the favorable prospects for agricultural output. For the month ended June 15, 1976, the index of prices received by farmers advanced 2 percent, as gains in soybean, corn, and hog prices more than offset the slippage in cattle prices. At mid-June, prices were about 5 percent above year-ago levels.
In recent weeks, the Russians have purchased about 1.5 million metric tons of soybeans in addition to about 4 million tons of wheat and corn under the grain agreement consummated last fall. The general strength in foreign demand, together with the continued expansion in livestock feeding domestically, explains the uptrend in grain prices until recently. However, if the summer and fall crops turn out as large as currently projected, grain prices could experience additional retrenchment.
The District's wheat harvest is progressing satisfactorily, although the rate of progress is behind last year's pace as well as the 10-year average. Nevertheless, production prospects in the major wheat states appear to be higher than originally expected. Recent estimates for Oklahoma and Kansas, where harvest is virtually complete, are 151 and 322 million bushels, respectively, down about 7 percent from last year. The Nebraska crop is also expected to be reasonably good, but output in Colorado is disappointing because of weather difficulties. For the nation, total wheat production is expected to be about 100 million bushels below last year, with spring wheat output partially offsetting the decline in the winter wheat production.
Most Tenth District banks contacted reported strong increases in business loan demand during June. Several of the banks indicated that a source of strength in loan demand was their participation in smaller banks' loans. Others, however, indicated that demand for loans arose primarily from their own customers. No particular industry or loan purpose dominated demand. Reasons for borrowing, nonetheless, included both inventory financing and capacity expansion. Agricultural loans—primarily to finance cattle inventories—also rose strongly in June, with participation again being a factor. Consumer loans generally rose, with auto loans showing the most strength.
Banks stated that their levels of negotiable CD's have bottomed out, but that they do not expect increases in loan demand strong enough to necessitate a buildup at this time. Several banks mentioned surprising strength in demand deposits as another reason for keeping low CD levels.