July 13, 1977
Tenth District retailers report sales in May and June to be much stronger than in preceding months, with durable home goods leading the way. Retail inventories are generally viewed as satisfactory. None of the businessmen surveyed expect an acceleration of inflation during the last half of the year. The wheat harvest is proceeding, and preliminary estimates suggest a large crop. Bankers in the Tenth District report continuing strong loan demand.
Retail sales in May and June, at large department stores in major metropolitan areas of the Tenth District, were generally much stronger than in March and April, and also stronger than in the same period a year ago. Most-respondents report business to beat least as good; and often better, than they had expected earlier this year. Durable goods sales tend to be up more than sales of soft goods. Furniture, major appliances, carpeting, and other home furnishings are selling very well. Several businessmen relate such sales to a housing boom in their areas. Store managers in both Kansas City and Omaha note an improvement in peoples' confidence, some of which they attribute to better weather for agriculture.
Nearly all of the retailers surveyed report that their inventories are in satisfactory condition. In some instances, this means higher stocks than last year; in other instances, lower. Where inventories are slightly out of line, improving sales in the second half of the year, or special sales promotions, are expected to correct the situation. Virtually none of the respondents expect to cut back on their purchasing to correct an inventory imbalance. None of the major retailers are encountering any shortages of goods, nor are they experiencing any trouble with their suppliers.
With few exceptions, the businessmen surveyed are optimistic about the continued strength of consumer spending and retail sales in the second half of the year. None of them believe that the rate of inflation will accelerate during the rest of 1977.
Sales of new automobiles, both foreign and domestic, continue to be strong in the Tenth District. Some sellers of domestic cars are experiencing difficulties in achieving the right inventory mix as the model year comes to an end, while most foreign car dealers report stocks much lower than they would like them to be. In general, both foreign and domestic dealers expect continued strength in sales into the 1978 model year.
The wheat harvest is making good progress despite weather delays in several areas. Heavy rains slowed the harvest in central Kansas for several days and caused some damage, but for the most part the wheat harvest in the nation's major producing state is nearing the completion stage. Preliminary figures indicate that the crop will amount to at least 375 million bushels-down somewhat from earlier estimates but still a very large harvest by historical standards. Last year, 339 million bushels were harvested in Kansas. The harvest is now moving into Nebraska at a fast clip, and the early reports are that yields are generally quite good. Thus, wheat output in the Tenth District should exceed last year's level by about 12 to 15 per cent.
Farm prices fell 5 per cent in June, posting their first monthly decline in 7 months. Although prices had been rising for several months, the decline in June pushed the average level of farm prices 6 per cent below the year-earlier figure. In light of recent reports on prospective supplies of crops and livestock products, future developments in farm prices are not likely to exert much upward pressure on food prices.
Most Tenth District bankers contacted for the July Redbook indicated that loan demand continues strong in their areas. Increased residential construction loans were reported in the western region of the District. Oklahoma and Colorado bankers indicated that energy-related business loans have increased substantially. Agricultural loan demand was reported buoyant by rural bankers and their correspondents.
Most of the banks surveyed have increased their lending rates in line with the recent increases in the national prime rate. A number of respondents indicated that they would further increase lending rates if the national prime rate rose in the future.
Only a few bankers reported a slowdown in the rate of growth of time and savings deposits as a result of the increase in market interest rates. Most indicated that deposit growth is moderately strong and will be sufficient to enable them to meet anticipated loan demand. A few respondents said they intend to be more aggressive in their attempts to attract CD funds.