January 27, 1982
Overview
The Tenth District economy continues to show softness,
apart from local areas benefiting from strength in the energy
sector. Recent strength in sales has left District retailers
satisfied with inventory levels. Auto sales continue to be sluggish,
however. Residential construction remains depressed, but commercial
construction activity is strong where the energy industry is
important. Farmland prices appear to be softening somewhat. Loan
demand ranges from weak in agricultural areas to strong in areas
serving the energy industry.
Retail Trade
Retailers in the Tenth District reported that nominal
sales gains were in the 8-15 percent range in 1981 compared to 1980.
While sales in October and November of last year were relatively
weak, December sales in the District were equal to or greater than
the year-over-year increase. Sales of apparel and electronic games
were particularly strong during December 1981. The recent strength
in sales left most District retailers satisfied with inventory
levels at the end of 1981. Strong sales also firmed up profit
margins for most retailers, who report merchandise cost increases in
the 5-6 percent range. Those cost increases are still being passed
on to the consumer as most retailers continue to maintain their inventory markups. However, all retailers indicate that consumers
are still very price conscious and, if necessary, retailers will cut
prices to maintain sales levels. Most District retailers expect
sales to be about 10 percent greater in the first half of 1982 than
in the first half of 1981.
Automobile Sales
District Automobile Dealers' Associations report
generally sluggish sales, with the exception of Oklahoma which
boasts a 6 percent increase over last year. High interest rates are
dampening demand and increasing the cost of floor planning to nearly
prohibitive levels, prompting dealers to trim inventories as much as
possible. In addition to high interest rates, banks are resorting to
higher down payments and longer residency requirements to ration
credit to auto buyers. The depressed credit conditions are
discouraging primarily small-and medium-sized car sales. Dealers
hold a bleak short-term outlook, but most predict an upswing during
the summer contingent upon lower interest rates.
Industry Activity
Most purchasing agents contacted report that
input prices have increased 8 to 12 percent in the last year, with
similar increases expected during 1982. Materials are readily
available, although some lead times have been extended due to
adjustments in production and in the work force. Inventory levels
are satisfactory for most of the firms contacted, and will remain at
or below current levels until the economy exhibits signs of
recovery.
Residential construction activity remains weak in most parts of the Tenth District. Commercial construction activity is strong in areas where the energy industry is important. Although energy activity continues to grow, there are some indications of a slight slowing—particularly in gas well drilling in Oklahoma and in Colorado's oil shale industry.
Agriculture
Tenth District farmers may be holding slightly larger
amounts of grain off the market than in a normal year, due mainly to
the unfavorable price situation. As a result, more stored grain is
entering the farmer-owned reserve program. Agricultural banks in the
Tenth District are carrying over into 1982 more 1981 farm loans than
is seasonally true. Bankers are continuing to maintain lines of
credit for long-standing farm and ranch customers, although many
bankers are not comfortable with this situation given the less-than-optimistic outlook for agriculture in 1982. In some instances,
farmers are being asked to liquidate a portion of their assets to
keep their farm businesses solvent. Fund availability remains
adequate but the creditworthiness of farm borrowers continues to
deteriorate. In some areas of Oklahoma, nonbank agricultural lenders
are increasing loan restrictions, which has forced the foreclosure
of several farming operations. Declines in farmland prices have
occurred in some parts of the District, but agricultural bankers
generally report that land prices are holding steady.
Banking Developments
Reported loan demand at Tenth District banks
ranges from weak in rural areas to strong in those areas serving the
energy industry. Commercial and industrial lending continues to be
the only source of strength Districtwide. A number of bankers report
still further weakness in the balance sheet situation in
agriculture. Prime rates range from 15 3/4 to 16 1/4 percent,
unchanged from last month's survey. Several bankers express concern
over a reduction in loan quality and indicate tighter lending
restrictions. While deposit growth was generally stronger than last
month, much of the growth was seasonal in nature. Banks in areas
with sizable loan demand continue to rely on large CDs to fund these
loans. Some of the growth in transactions accounts and passbook
savings accounts is attributed to precautionary motives. Despite the
very heavy promotion of IRA/Keough programs, most banks report
smaller-than-expected activity in these accounts. Several bankers
indicate that the bulk of the funds being transferred into these
accounts is coming from passbook savings and from thrift
institutions.