August 9, 1978
Industries in the Tenth District are paying higher prices for materials inputs, but are experiencing no problems of availability. Materials inventories are generally satisfactory, and most industries are operating below capacity. A problem exists in some areas, however, with a gasoline shortage described as becoming critical. Retail sales are strong, and retailers are generally optimistic for the remainder of the year. Continued reduction in beef production, together with further liquidation of the cattle inventory, implies no relief in retail meat prices in either the short-run or the intermediate term. Loan demand at District commercial banks is strong, while deposit growth is moderate.
Purchasing agents surveyed in the Tenth District report price increases for their inputs in the 2 per cent to 4 per cent range during the past three months. Increases, however, are generally expected to be slower for the remainder of this year. Some purchasing agents feel that some suppliers have been taking advantage of the inflationary trend by raising prices beyond their actual cost increases.
On balance, materials inventories are perceived by purchasing agents to be at satisfactory levels. In only a few cases have there been any serious efforts to trim inventories due to inadequate sales. For the rest of the year, most industries plan to maintain their current levels of materials inventories.
Input materials availability is still not a major problem. Although lead times have lengthened, purchasing agents were in some instances forewarned by their suppliers and were able to allow for the extra time in their purchasing patterns. Difficulties with materials availability are not anticipated for the rest of the year. The building materials industry is operating at full capacity, but other industries appear to be operating below that level. No bottlenecks were reported, nor are any anticipated to appear soon, in either plant or labor.
One head office director, whose firm is involved in the energy industry and related fields, reports the existence of a current shortage of gasoline in certain parts of the county, especially the upper Midwest. The shortage, which he describes as becoming critical and likely to tighten up further, is due both to strong demand and to some temporary refinery shutdowns. Tourist activity may be affected soon, and there is some possibility of a negative impact on agriculture in the early fall.
The dollar volume of retail sales is reported by Tenth District respondents to be substantially higher than a year ago, with particularly strong sales in the last three months for nearly all categories of goods. Price increases are reported to be only enough to cover wholesale cost increases and to maintain an acceptable margin. Inventory levels are more often viewed as satisfactory than as unsatisfactory. Inventory levels reported as unsatisfactory are generally regarded as too high in relation to current sales, and have led to special promotions-especially of nondurable goods. The majority of retailers view the remainder of the year with optimism, predicting strong sales for the upcoming fall season.
Two recently released U.S. Department of Agriculture reports indicate continued reduction in U.S. beef production. Despite increased numbers of cattle on feed and record high placements (up 12 and 9 per cent, respectively, from year-earlier levels) in the 23 major cattle feeding states, marketings were also up substantially and no backlog of animals waiting to be sold was apparent. Furthermore, record numbers of heifers and heifer calves on feed will mean lighter average slaughter weights in future months.
Cattle inventory figures indicate that producers are still liquidating the nation's cattle inventory. Cowherd and replacement heifer numbers are both down from year-earlier levels. The nation's 1978 calf crop is expected to be off about 4 per cent from 1977 with a continued decline likely in 1979. These data-while heartening to cattle producers-suggest no relief is in sight for the consumer at the retail beef counter. In fact, average retail beef prices next year will likely be substantially higher than in 1978.
Most bankers contacted in the Tenth District reported that loan demand is strong. A number of bankers report heavy demands for real estate loans, especially in Colorado and Oklahoma. Construction lending is up from a year ago, with the strongest areas relating to government programs for multifamily housing for the elderly and for low income families. Agricultural loan demand has decreased everywhere in the District except Oklahoma, where borrowing by cattle ranchers is heavy. Loans for natural resources and energy development remain vigorous. Most bankers did not raise their lending rates during the past month, but they are being very selective in taking new customers.
Deposit growth is moderate at most banks contacted. Demand deposits are either flat or up slightly throughout most of the District. While bankers express concern about continued savings deposit outflows due to higher interest rates, consumer certificates and large negotiable CD's have increased more than enough to offset these outflows. Most bankers anticipate continued moderate deposit growth, but the cost of funds is expected to rise.