September 20, 1983
Overview
Business activity in the Tenth District continues to grow, with
sales and inventories both expanding. Prices at retail and for
industrial inputs are increasing only moderately. Housing activity
is beginning to slow, although savings inflows are expected to
improve through yearend. Crop prices are up and livestock prices
down, both in reaction to drought conditions. Bank loan demand has
increased slightly, as have deposits.
Retail Trade
Total dollar sales volume has increased by as much as 12 percent in
the first eight months of 1983 compared with the same period last
year. Retail price increases have been moderate this year and are
expected to remain so through the end of the year. In general,
respondents are satisfied with inventory levels and are expanding
stocks only to meet the pickup sales. The outlook for sales for the
rest of the year is promising due to an improved economy, increased
advertising, and changes in marketing strategy.
Purchasing Agents
The majority of purchasing agents contacted in the Tenth District
report input price increases of 2 to 5 percent since September of
last year, with most of the increase occurring during the past three
months. Prices are generally expected to remain stable or increase
slightly through the end of the year. All purchasing agents report
inventories at very low levels. Most report recent inventory
expansion in response to increased sales, although a few note
continued trimming of stocks. Purchasing agents are nearly unanimous
in having no significant problems in obtaining inputs.
Housing Activity and Finance
Housing starts remain at about double last year's rate, despite
recent moderation in housing activity. Most of this year's
improvement in housing has been concentrated in single-family
starts. Inventories are low although there are some indications that
they are beginning to rise again. Demand for housing has weakened
significantly because of the recent increase in interest rates and
uncertainty about future rates. Most savings and loan associations
report an improvement in savings inflows and continued improvement
is expected through yearend. Mortgage rates range from 11 3/4
percent for variable rate mortgages to 14 percent on fixed rate
mortgages. Mortgage rates are expected to remain steady until near
the end of 1983 and then decline slightly.
Agriculture
Crop conditions are mixed throughout the Tenth District. Irrigated
crops are likely to produce record yields, while nonirrigated crops
have been severely affected by the drought. Crop yields for corn
and. soybeans of 50 to 75 percent below normal are likely in Kansas,
Missouri, and Oklahoma according to District bankers. Little of the
corn crop will be salvageable for silage, while soybeans are more
likely to be harvested but at reduced yields. Colorado, New Mexico,
and parts of Nebraska are experiencing high yields on their
irrigated corn, soybean, dry edible beans, hay, and sugar beet
crops. While crop prices have risen in anticipation of poor yields,
livestock prices have fallen as marketings have increased due to
rising feed costs and poor pasture conditions. District bankers
anticipate an even larger increase in marketing of livestock later
in the year. Farm equipment and supply sales activity is very slow.
Sales of big-ticket items, such as tractors and combines, are being
postponed until next year. Some increase in loan repayments is
reported by bankers, as some farmers have been selling corn recently
released from the Farmer Owned Reserve program. Tenth District
farmers are showing little if any interest in the 1984 PIK (Payment-In-Kind) program for wheat.
Banking
Loan demand at Tenth District banks has increased slightly over the
past month, mostly due to increases in commercial and industrial
loans. Consumer loan and commercial real estate loan activity was
quite variable with a very slight increase on average, while
agricultural loans decreased slightly. Total deposits have risen at
the respondent banks. The growth in demand deposits was quite
variable, with a slight decrease overall. Some bankers experiencing
a decrease in demand deposits feel that interest-sensitive consumers
are switching, to interest-bearing deposits. Growth in money market
deposit accounts and in money market and small saver certificates
was also variable, but with little change on average. Conventional
NOW accounts and Super-NOW accounts were up, as were IRA and Keogh
accounts and large CDs. Some respondents indicate that they are
deemphasizing large CD's. The prime rate ranged between 11 percent
and 14.6 percent with three-quarters of the banks charging 12
percent or less. Over half the respondents report a half-percent
increase in their prime rate over the last month, while a large
fraction report no change. Consumer lending rates have not changed
on average during the past month and most respondents do not expect
any change in the near term.