May 16, 1979
Savings and loan associations in the Tenth District report a sharp decline in net inflows as a result of the March changes in money market certificates. Housing starts and sales, however, remain relatively strong, though somewhat below 1978's level. Most major retailers report roughly flat real sales, but some expect a stronger second half. A lower-than-expected increase in winter wheat production could result in higher wheat prices ahead. Loan demand at Tenth District banks remains high, but deposit growth, with the exception of strong money market certificate inflows, is weak.
Tenth District savings and loan associations report large drops in net savings inflows and, in some cases, net outflows since the March 1979 money market certificate changes. Despite the current 10 to 11 per cent range in mortgage rates, loan demand is still reported as strong due to fears of even higher rates in the near future or of credit shortages in the states of Missouri, New Mexico, and Kansas which all have usury limits. Mortgage commitments are reported generally below the levels of a year ago and are expected to decrease over the rest of 1979 due to rising mortgage rates or mortgage fund shortages.
According to Tenth District builders' associations, housing starts have been good this year, though down from a very strong 1978. Where strength exists, it is primarily in single-family units with multi- family starts remaining about the same as this time last year. Some associations, especially in Missouri and New Mexico, express concern about the effect of usury laws in their states on the availability of funds to meet existing demand for housing. Sales of new homes are down slightly over this time last year and the inventory of unsold homes is reported to be adequate to tight, largely the result of better planning and less speculative building. Prices of materials have not increased a great deal from last year and materials availability is adequate for current needs. Deliveries have been somewhat slow due to the harsh winter and there is some concern over the supply of concrete, but most District associations anticipate these situations to improve as the year progresses.
Most major retailers in the Tenth District, with the exception of Sears stores, report current dollar sales approximately 10 per cent above last year. Seasonal goods and summer fashions are rather strong sellers, while household furnishings, major appliances, and hardware items are soft. Some price rollbacks, reductions, and absorption of price increases were mentioned by a number of retailers. Most of the retailers said that they expect a 10 per cent inflation rate in 1979. Inventories are a little high, but "well within our budget" at most of the stores. No one mentioned any major change planned in inventory movements. The retailers expect a stronger second half, although some pessimism was noted. With predictions of a recession and with gas shortages, retailers feel they will be hit hard if both occur on a widespread basis.
U.S. winter wheat production for 1979 is currently estimated at 1.39 billion bushels by the U.S. Department of Agriculture, up 11 per cent from 1978. Slightly higher yields and increased acreage account for the larger production estimate. Nonetheless, the current production estimate was below grain trade expectations and could, consequently, add support to wheat prices. An Oklahoma Branch director indicates the Southern Plains winter wheat crop is outstanding and growing conditions are very favorable, although crop maturity is 10-14 days behind normal. Wheat fields in Nebraska and in some parts of western Kansas, however, suffered substantially more winterkill than usual. Planting progress for spring crops has been delayed over much of the Northern Plains and Middle West due to wet weather. As yet, there is little indication that the delays will cause Tenth District farmers to significantly alter planting intentions. Nonetheless, grain industry concern about the progress of the late planted crop-especially in view of similar problems in Canada and the USSR-means that market prices will be particularly sensitive to weather news this summer.
All but one of the banks contacted in this month's survey report strong loan demand among major loan categories. Agricultural loans, especially those to cattle ranchers, are up sharply in some areas. Banks are responding to this demand by offering loan participations, instituting programs to restrict the growth of certain types of loans, and in some cases, by increasing lending rates. Most Tenth District bankers report that both demand and savings deposits are stable or declining. Strong inflows to money market certificate accounts continue to furnish the only source of growth in small time deposits. Some of the larger banks in the District are relying increasingly on the issuance of large CD's. In addition, some banks are planning to seek alternative sources of funds-such as holding company commercial paper and borrowing at the discount window-to compensate for the expected reduction in funds from TT&L accounts and from purchases of nonmember bank Federal funds that may result from adoption of the recently proposed change in reserve requirements.