March 15, 1978
Tenth District retailers report that a second winter of bad weather has reduced sales to about the level of 1977's first quarter. While a rebound in demand is predicted for spring, slow deliveries due to continued bad weather or the coal strike might result in the loss of sales. Auto dealers, too, report sales about equal to last year—a surprising result considering the national decline in auto sales. On the agricultural front, both near-term and futures prices for grain crops have been advancing, but the likelihood of ample supplies may point to lower prices later on. Loan demand in the Tenth District has been mixed, with large city bankers reporting weak demand, but bankers in outlying areas reporting strong demand, especially for cattle feeder loans.
Due to the repeat this year of the severe winter weather, dollar retail sales in the Tenth District have about equaled the levels reached in the same period in 1977. Though the timing varied across metropolitan areas, sales in either January or February were generally worse than last year, with the other month offsetting this decline. While the Denver area has not experienced bad weather, reports from retailers there were mixed. Most District retailers feel that, while March sales have been unsatisfactory to date, a strong month is possible if the weather improves. Looking ahead, spring sales are projected to increase 6 to 20 per cent over last year. However, fears of a fall slow-down in the economy were expressed by some respondents.
Inventories at District retailers appear to be at desired levels despite the effects of the weather-induced sales slowdown. Nevertheless, several retailers reported problems in obtaining supplies from the East and certain hard-hit areas of the Midwest. One respondent also noted a problem in obtaining shoes from Ohio and Indiana due to coal strike-related energy cutbacks. Though not yet serious, a much longer delay in receipt of spring fashions could cause a loss of sales. One respondent also expressed concern about the negative impact on retail hiring that the rising minimum wage has had and will have on his industry.
Tenth District auto dealers report that, on balance, unit sales are averaging about the same as last year. Those who report a decline in sales point to the bad winter weather as the major factor. One dealer also mentioned that the weather has tied up rail cars and, thereby, has reduced sales by delaying delivery from manufacturers. However, most dealers expect that, with spring, sales will "take off." Additionally, some dealers mentioned that tax refunds will soon start increasing the purchases of new cars.
As to auto size and features, it appears that small and intermediate cars are the best sellers, with extensive options included. It also seems that imports are facing stiffer competition through heavier advertising of domestic small cars and more small cars being offered for sale. Although there is some short-term pessimism, dealers are all extremely optimistic about sales expectations for the rest of the year.
Futures market prices for major Tenth District grain crops advanced during the past month. However, near-term price advances exceeded those of the more distant contracts for soybeans and hard winter wheat. March soybean futures advanced sharply (94 cents per bushel) while advances of 7 cents per bushel were recorded for hard winter wheat and for corn. A number of factors accounted for these price increases. Among them are increased livestock feed consumption in the United States, CCC loan participation by wheat and corn producers, grain transportation problems associated with severe winter weather, and decreases in production estimates for southern hemisphere crops. However, grain stocks data, winter wheat condition reports, and planting intentions for these grain crops all point to the likelihood of very ample supplies for 1978. Thus, recent price gains may give way to lower prices later on. On the subject of the farm strike, one Bank Director noted that the strike was having very little effect in his area and that he expects .... .all of the farmers to be back at work come spring." According to this Director, the cold, wet winter has resulted in very good prospects for the wheat crop but, simultaneously, has caused ranchers to lose up to 30 per cent of this spring's calf crop.
Most large city bankers contacted in the Tenth District report weak loan demand. This contrasts with strong loan demand in outlying areas. Demands for cattle feeder loans have been heavy at both small and large banks, with large banks also reporting continued strong demand for natural resource and energy development loans. However, unusually severe weather conditions have had an adverse impact on consumer, real estate, construction, and other business loans at the larger banks. Credit conditions at Nebraska banks, which were extremely tight last fall, have eased considerably, as small banks continue to pay down correspondent loans that were used to finance agriculture. Deposit growth is strong at most banks contacted. Demand deposits are up sharply, but time and savings deposit trends are mixed. Small banks report strong time and savings deposit gains, but most large banks report only moderate increases or declines. One large bank reports extremely rapid savings growth, due to the offering of small denomination bearer CD's. Large negotiable CD's were reduced at large banks in response to their weak loan demand.