November 9, 1977
Economic indicators suggest that business conditions in the Eleventh District are continuing to strengthen, and Directors, businessmen, and bankers contacted this month remain generally optimistic. Industrial output has rebounded after a brief lull. The rate of unemployment declined slightly in September, and Directors report that skilled labor remains in short supply in most urban areas. Housing starts eased some recently but still remain at a high level. Automobile dealers report that new cars are selling especially well, and retailers are very optimistic concerning Christmas sales this year. Most businesses indicate that inventory levels are good. Total bank loans continue to show good growth, although bankers generally indicate continuing disappointment over the strength in commercial and industrial loans. Farm incomes are down somewhat due to lower prices for crops.
The 1978 model automobiles are being well received. All auto dealers interviewed report higher sales of both fleet and consumer cars this year, and several dealers indicate they have experienced record sales during this introductory period. Price increases seem to have had little impact on purchases. All dealers report a strong demand for intermediate- and large-size cars with optional equipment. Many dealers report an exceptionally high volume of large luxury car sales, and Ford dealers indicate they could sell twice as many Thunderbirds as they can get. Nevertheless, smaller cars, such as Ford's Fiesta and GM's Chevette subcompacts, are selling extremely well. Most of the dealers have very low stocks of 1977 models, and inventories of 1978 models are down, especially on some of the hottest selling models.
A "good" volume of orders was placed at a recent showing of women's spring apparel at the Dallas Apparel Mart. Most buyers—largely from small retail outlets—are cautiously optimistic about the prospects for future sales. Some bookings resulted because retailers feel that apparel costs may rise significantly next year when wage adjustments, stemming from the increased minimum wage, work into production costs. Retailers report consumers continue to be highly sensitive to price increases. Sales in rural communities are off because of depressed farm incomes, but sales are expected to strengthen somewhat when the government begins to disburse deficiency payments. Another factor that is affecting current sales is the unseasonably warm weather for this time of year. Inventories of winter merchandise are high. And if unseasonal temperatures persist, retailers may be forced to cut prices before Christmas to reduce stocks.
Prospects for retail sales for the remainder of the year are very good. Most retailers contacted indicate that Christmas sales this year are well ahead of last season, and in some stores, sales have already exceeded even their optimistic forecasts. Price increases have not averaged more than the general rate of inflation. Inventory levels are good to adequate at most establishments.
Interviews with District bankers and Directors reflect that total loan demand is continuing to strengthen but more slowly than expected. Real estate and consumer loans appear to be the main areas of strength at most banks although some banks in Dallas and Houston report some further growth in loan demand from energy-related industries. Bankers note that there still is no evidence of a rising volume of machinery purchases, oil field equipment excluded. Machinery manufacturers are holding inventories at low levels.
All bankers contacted indicate that disintermediation as a result of recent increases in short-term interest rates probably has been small or nonexistent thus far. Some shifting of funds from savings deposits to large CD's was noted, however, and most of the contacts feel that disintermediation would occur as time deposits mature and short-term rates continue to rise.
Cash receipts from farm and ranch marketings for the District states in the first eight months of this year were 2 percent above the same period a year earlier. Although showing a cumulative gain of 6 percent, receipts from crop sales have slowed considerably as prices for cotton, soybeans, and corn have fallen sharply. Prices for wheat, oats, barley, and grain sorghum have strengthened somewhat in the past two months but remain well below levels a year ago. As a result, crop sales are also likely to decline further in coming months despite a bumper cotton crop. Because of low market prices, a significant portion of the 1977 cotton and grain crops will likely be placed under the nonrecourse loan program of the Commodity Credit Corporation. Livestock sales this year have lagged year-earlier levels, but receipts probably will increase during the remainder of 1977 with a small rise in fed cattle marketings and strengthening cattle prices. Altogether, cash receipts for 1977 may only match last year's level.