July 12, 1978
Continued growth without severe imbalances characterizes Tenth District economic activity. Inventories of manufacturers' inputs and of goods in retail stores are considered to be close to desired levels. Lead times on some materials and producer goods have stretched out, but a slower rate of economic expansion is expected to hold production under capacity, thereby keeping supplies adequate. The wheat harvest is now slightly less than half- completed. Reports on yield vary, but total production will be down from last year in any case because of reduced acreage. The combination of large carryover stocks and government support programs should keep wheat prices fairly stable over the 1978-79 marketing year. Loan demand is strong and deposit growth is moderate at Tenth District banks. The demand for money market CD's is weak, and consists mostly of transfers from other time accounts.
Consumer spending continues strong, judging from reporting retail department stores. Softline items are selling especially well. Prices are up about 2 per cent, on average, from 3 months ago. Store executives complain about the exorbitant price increases being demanded by some manufacturers, and attribute this pricing behavior to expectations of price controls. Inventories at retail are felt to be a little high, but stocks are expected to be back to desired levels soon. Retailers forecast a slowing economy and stiffening competition for consumer dollars as the Christmas season approaches.
Purchasing agents say that input prices continue to rise and that lead times for some items are lengthening. However, inventories of materials remain satisfactory and no acute shortages of supplies are expected to develop in the months ahead. Most buyers note that business is good now, but some think it might sour soon. In most of the firms represented by those purchasing agents contacted, there is still excess capacity. The aircraft industry in Wichita, however, is having trouble hiring and retaining skilled labor and management personnel.
Hot, dry weather has permitted wheat farmers to harvest their crop at a rapid clip, although total progress is somewhat behind schedule. The harvest is finished in Oklahoma and is progressing well in Kansas, but the 40 per cent that has been harvested compares with a long-term average of 55 per cent for this point in time. Reports on yields are mixed. With the reduction in acreage, production will obviously be smaller than last year. Moreover, most of the information in the press indicates that yields may fall below levels projected by the USDA. However, two directors report that yields in their immediate areas are excellent. No matter what the final production figure is, carryover stocks are sufficiently large to assure an abundant total supply of wheat for the 1978-79 marketing year, which will likely preclude a sharp runup in wheat prices over this period.
The two directors commenting on the wheat harvest agree that most of the harvested grain is finding shelter, despite well-publicized concern about a boxcar shortage 1 to 2 months ago. As always, some grain is being temporarily stored on the ground or in the streets of rural communities. Within a short time, virtually all of this wheat will find shelter as local elevators begin shipping to terminal markets. Although a seasonal decline normally occurs during the harvest period, wheat prices have held up very well so far this year. Given the quantity of grain that is under Government loan, together with other features of the farm program, it is unlikely that wheat prices will experience the same precipitous drop as occurred last year. Thus, 1978 should be a better year for the District's wheat producers.
Tenth District bankers report that loan demand remains strong. A number of bankers single out loans for energy and natural resources development as one of the strongest loan demand categories. Agricultural loan demand, particularly by cattle farmers, is heavy. Construction loan demand for single-family housing also remains vigorous. Some banks report that they are becoming somewhat more selective in making loans due to the continued strong demand and a slight tightening of available funds. Most bankers expect their lending rates to peak within 6 months, with a prime rate reaching between 9 1/4 and 10 per cent.
Deposit growth is moderate at most banks contacted. Demand and time deposits are increasing, but passbook savings deposits are leveling off or declining due to withdrawals by corporate customers. Money market CD's are being offered by all banks contacted, but the demand for them at most banks has been weak. Almost all of the money market CD's consist of transfers from other time accounts. Some bankers feel that the money market CD's may help to divert a slowdown of deposit growth.