May 13, 1981
Overview
The District economy is displaying little vigor, except in
energy-related categories. Department store sales picked up a bit in
April, but sales of new cars plunged. Outflows of funds at S&L's
suggest further declines in homebuilding. Manufacturing activity
remains depressed despite some improvement. Purchasing agents report
fewer and smaller increases in input prices, and ample supplies of
materials. Recent rains have improved pasture and crop conditions,
but bankers believe that many farmers face bleak economic prospects.
In banking, loan demand and deposit growth are lackluster outside
energy-strong areas.
Automobile Sales
Sales of new cars continue depressed in early May,
following sharp declines in April. Dealers do not expect business to
improve much soon, and are holding inventories at very low levels.
In some states, relief is being sought from usury ceilings that have
made auto loans unprofitable for banks.
Retail Sales and Inventories
Department store managers report
improved sales in April. Lawn, garden, and automotive goods have
sold particularly well in recent weeks, but big ticket items are
still selling slowly. Retail profit margins, already reduced, are
being cut further by the increase in the minimum wage. Retailers say
their inventories are a bit high, but not worrisome, unless sales
unexpectedly decline.
Home Finance
Savings and loan difficulties continue, with most
associations reporting significant net outflows of funds. Rates on
new mortgages range from 14 3/4 to 17 per cent. Some S&L's now will
finance the purchase of a house only if they already hold the
existing mortgage. Mortgage lenders say that not many individuals
qualify at current interest rates. Few thrifts have implemented
variable rate mortgages although all are planning to do so.
Manufacturers' Input Prices and Inventories
Purchasing agents note
a trend toward more stable prices in recent months. Most raw
materials are readily available. The major exception is lumber,
which is in short supply due to some mill shutdowns. About half the
companies contacted report excessive inventories and excess plant
capacity. About one-third have workers on layoff, a smaller portion
than in recent months.
Agriculture
The winter wheat crop in the Tenth District is in
fairly good shape due to recent rainfall. Winter wheat is
approximately 2 to 3 weeks ahead of normal for this time of year and
harvesting will begin in Oklahoma around the end of May. Spring
planting is underway, although farmers in some areas are using
irrigation at this time to pre-water their fields to allow the
plantings to get an adequate start. Depressed cattle prices continue
to cause difficulties for ranchers and cattle feeders. Many ranchers
were intending to sell off cattle within the next few weeks due to
lack of pasture growth. However, recent rains have improved pasture
conditions, allowing many ranchers to continue to hold these cattle.
Agricultural loan demand remains low throughout the District while fund availability at agricultural banks appears to be more than adequate. Many farmers and ranchers have begun the year in a lower equity position than at this time a year earlier. In some parts of the Tenth District, agricultural producers have been able to pay only the interest on last year's loans and requests for renewals or extensions are higher than normal. District bankers estimate that the number of agricultural borrowers who will have repayment difficulties by the end of 1981 may be twice as many as in a normal year. Although many bankers are recommending the Farmers Home Administration as an alternative source of credit to their borrowers this spring, most are not concerned over proposed cutbacks in this program.
Banking Developments
Loan demand is mixed at Tenth District banks.
Several banks in Oklahoma and Colorado report strong increases in
commercial, industrial, and commercial real estate loans-all related
to the robust growth of energy-related industries. Elsewhere,
commercial and industrial loans show moderate increases, but real
estate loan demand is generally flat. Agricultural loans are flat,
with most lending activity confined to carryovers. Consumer loan
demand is also flat throughout the District, largely in response to
the recent rise in lending rates. Most of the metropolitan banks
have recently raised prime rates to 19 per cent. Base lending fees
at some country banks have recently been increased to 19 1/2 per
cent, but some banks in Nebraska are holding base fees below 18 per
cent.
Deposit growth was generally stable this past month. Most bankers report moderate growth in NOW accounts, and expect further small shifts from demand deposits to NOW's. Demand deposits are mixed, with the strongest growth in Oklahoma and Colorado. Time deposits other than MMC's and savings deposits other than NOW's are either stable or declining at most banks. Some banks with strong loan demand are continuing to attract funds by marketing large CD's.