September 14, 1977
Tenth District directors report continued strength in the area economy and a general mood of optimism among area businessmen. Retail sales are only moderately good, but construction is booming. The most negative factor mentioned is the continued uncertainty generated by a "garbled" energy program and an as yet unspecified tax reform package. On the agricultural front, bumper crops should provide stability to retail food prices, but they continue to depress farm incomes. As a result of these lower incomes, agricultural credit needs are particularly heavy—contributing to an overall strong demand for loans.
Nonbank directors report that business conditions are generally good in the regional economy. The strongest sector, mentioned by several directors, appears to be construction. In Denver, especially, office construction is booming. In Omaha, homebuilding is reported as the best in 4-5 years, with apartmentbuilding contributing strongly to this growth. Unemployment is down across the area and employment is up. Retail sales were mentioned by several directors as doing "reasonably well," with dollar gains most marked in the suburban areas. Auto sales, in particular, were very strong, and Oklahoma directors reported greater retail strength than did other directors. In general, noted one director, "It's hard to get a controversy going; everything is doing well."
Directors from both Oklahoma and Colorado noted a positive influence of the energy situation on the economy of their respective states. In Oklahoma, "There is much activity in the energy sector, which is causing a pickup in general business." In Colorado, there is the "feeling of the powerful influence of coal and especially oil shale. In addition, much solar energy research is also taking place."
While attitudes of businessmen are generally bullish, two important negative themes were mentioned by most of the directors. First, the business community remains skeptical of the Administration's tax and energy programs. As a result, capital expenditures are being delayed awaiting clarification. "The energy thing is just chaotic, expressed one director." Second, although the weather has been excellent, farm income is suffering badly due to low product prices, and farm implement dealers, especially, are feeling the impact. As to the national economy, however, the consensus still expects continued strength at least through mid-1978.
Livestock and major crop supplies will likely be large enough to effectively preclude a significant rise in the prices received by farmers in the coming months. Although the fall harvest has just begun, there is clear evidence that the size of the feed grain and soybean crops will be of bumper proportion, pushing total supplies for the new marketing year well above year-ago levels. Moreover, grain stocks a year from now will probably show substantial gains over current levels. Although grain prices may show some seasonal strength in the post-harvest period, they are not expected to average much above government loan rates in the foreseeable future.
The sharp reduction in grain prices has significantly lowered feed costs in the livestock industry. As a result, producers have been encouraged to expand their breeding and production programs. Therefore, meat supplies through mid-1978 promise to run larger than originally anticipated, which suggests that prices at the farm level are not likely to rise significantly. The Index of Prices Received by Farmers dipped for the third consecutive time in the month ended August 15 to a level 6 per cent below a year ago. Given the outlook for commodity supplies, farm prices will probably show only modest strength at best for the next several months, and this development should provide some degree of stability to retail food prices.
Most Tenth District bankers contacted for the September Red Book survey reported strong demand for loans. Agricultural credit needs are particularly heavy—necessitating increased sales of loans by smaller country banks to their correspondents. Some bankers reported an increase in business loans—particularly in the construction area—although others reported a softening in business loan demand.
Total deposits have increased at most banks contacted, but time and savings deposit inflows have moderated. Many bankers felt that the rise in short-term rates could affect savings flows in the near future. Most bankers expect strong loan demand in the near term, and many said that deposit growth would not keep pace with the need for funds. These bankers anticipate that they will have to further reduce their securities and sell loans to larger banks.