May 12, 1982
Overview
Business conditions remain generally weak in the Tenth
District, although pockets of optimism and strength do exist. Recent
weakness in retail sales is expected to continue into the fourth
quarter, although automobile dealers evince some guarded optimism.
Industrial materials prices are still falling, but are expected to
stabilize soon. Manufacturers are attempting to trim their
inventories further, and retail inventories are also viewed as
somewhat excessive. Although there are some signs of improved
profitability in livestock production, agricultural loans are being
put under increasing scrutiny. Total loan demand at commercial banks
remains flat, with some weakness evident in energy sector loans.
Retail Trade
Except in the energy producing areas of the Tenth
District, retailers report small declines in nominal sales in the
first four months of 1982 relative to the same time period in 1981.
In the areas where energy development has spurred the economy, sales
were reported as 10-20 percent higher than last year. Throughout the
District, sales slowed in March and April. Weakness was apparent in
appliance, lawn and garden, and home improvement merchandise. Due to
recent slack sales, most retailers have excess inventory which has
put some downward pressure on profit margins. Retailers, however,
report merchandise, utility, and labor costs have stabilized so
profits may be down less than might have been expected. Most
retailers indicate that they expect the weakness in sales to
continue through the first two months of the fourth quarter. In
those areas where energy production is important, however, retailers
expect sales to continue to be well over 1981 levels.
Automobile Dealers Associations
Automobile dealers in the Tenth District are more optimistic than they were six weeks ago, in spite
of continued slow sales and high interest rates. With the exception
of Oklahoma's 9 percent increase, Tenth District automobile sales
remain depressed, in some areas down 5 to 10 percent from a year
ago. Inventories have now stabilized at low levels. Dealers intimate
a sense of guarded optimism, convinced of the existence of pent-up
demand.
Purchasing Agents
Almost all purchasing agents report prices for
major new materials ranging from 5 percent to 18 percent lower than
a year ago. Stable or slightly increasing prices are expected for
the remainder of the year. Input availability is not a problem
within the Tenth District, with the exception of the heavy metal
industries where 2-3 weeks lead times are being experienced. Most of
the companies contacted are continuing to trim inventories.
Agriculture
Many Tenth District bankers are currently increasing
their loan loss provisions. It is estimated that an average of 30
percent of agricultural loans and 20 percent of nonagricultural
loans are receiving careful scrutiny on a monthly basis by
commercial bankers within the District. Some of the more careful
monitoring by bankers is due to increased numbers of customers with
adequate cash flow but insufficient collateral. Banks and Production
Credit Associations report a slight increase in voluntary business
liquidations as a last resort method of preserving remaining assets
prior to forced bankruptcy.
District bankers report some damage to the winter wheat crop as a result of the recent freeze, but not nearly as severe as last year's frost damage. Recent improvement in cattle prices has had a significant impact on the profitability of cattle producers in the first quarter of 1982. Hog production likewise is showing signs of improved profitability.
Banking Developments
Reported loan demand is generally
characterized as flat throughout the Tenth District. The energy
sector, previously a source of strength, continues to weaken
resulting in slower demand for commercial and industrial loans and
commercial construction financing. The recently announced shutdown
of the Exxon shale oil project is seen as having an adverse effect
on the economy and financial institutions in western Colorado. More
generally, several bankers express concern over the profitability of
energy loans in light of the decline in world oil prices. Consumer,
residential construction, and agricultural lending activity continue
to be depressed.
Much of the deposit activity in recent weeks is seen as tax-related or seasonal in nature. However, some banks report an increase in receivables and inventory financing. In addition, several banks indicate that customers are continuing to transfer funds out of thrift institutions into small time and savings deposits at banks.