November 10, 1981
Summary
Economic activity in the Tenth District continues to
soften, except where the energy and recreation industries are
especially important. Retail sales, including new automobiles sales,
are slow and retail inventories are somewhat higher than desired.
Price increases are also moderating, however. Farm income remains
under pressure from low prices for output. Loan demand at District
banks is mixed, and deposit growth remains sluggish.
Retail Trade
The majority of Tenth District retailers report that
nominal sales in the January-September 1981 period were only
slightly higher than in the January-September 1980 period. In
addition, most retailers report softness in October 1981 sales,
relative to the first nine months of the year. Greatest weakness is
in sales of big ticket items, such as appliances, furniture, and
fine jewelry, while some strength exists in sales of women's apparel
and winter clothing. Retailers note downward pressure on profit
margins due to soft sales, despite only small increases in
merchandise costs. All retailers indicate that current inventory
levels are too high, due largely to weak sales. Excess stocks are
expected to disappear by yearend, however, as most District
retailers express optimism about sales in the coming holiday season.
Automobile Sales
Tenth District Automobile Dealers Associations
report auto sales markedly below last year at this time, with the
exception of Oklahoma where a strong economy is supporting an
increase in sales of over 10 percent. High interest rates continue
to plague the industry, forcing dealers to carry low inventories
which may also be having a depressing effect on sales. While
financing is available, fewer people are able to afford the high
interest rates and larger downpayments required by banks carrying
auto loans. Auto sales for the remainder of the year are expected to
be slow unless interest rates decline and the economy strengthens.
Agriculture
The agricultural situation in the Tenth District
continues to appear depressed with little prospect for improvement
by the end of the year. There is little prospect for improvement in
farm income levels for 1981 as compared to 1980, given the
continuing low prices received by farmers for both crops and
livestock. Despite excellent pasture and range conditions throughout
the District, most cattle producers do not intend to hold calves or
feeder steers through the winter. Although cattle prices are
expected to increase by spring, most ranchers are marketing their
calves now in order to meet their current debt obligations.
The availability of credit does not appear to be a significant problem at most District banks, and credit from agricultural merchants and dealers continues to be available in most areas. However, concern is being expressed over the creditworthiness of borrowers. Persistent low commodity prices, for both crops and livestock, coupled with the high cost of borrowing leads to continuing repayment difficulties for farmers. District bankers estimate that in 1982 the number of agricultural customers no longer creditworthy will be twice as large as in a normal year.
Financial Conditions
Reported loan demand at Tenth District banks
is mixed this month. Commercial and industrial lending is strong
where energy or recreation industries are important, but only stable
or up slightly in other areas. Very little demand is reported for
real estate loans, except for commercial real estate lending in
those areas with healthy economic activity. Agricultural and
consumer loan demand remained essentially flat in recent weeks.
Prime lending rates have dropped 150 to 200 basis points in the last
month to the 17 1/2 to 18 percent level. Several banks report more
stringent lending policies, with greater emphasis on the
creditworthiness of the borrower.
Deposit growth at Tenth District banks remained sluggish in the past month, despite the introduction al the all-savers certificates. Volume on these certificates is reported as mixed. New money comprised 17 to 30 percent of the total, with the remainder of the funds for the all-savers certificates usually coming from a different account within the same bank. Demand deposits, and consumer time and savings deposits subject to fixed ceiling rates, declined in most areas. NOW accounts, money market certificates, and small saver certificates at most banks displayed stable growth. Large CD growth is up in most areas, particularly those where the level of economic activity is high.