November 2, 1983
Overview
Reports from the Tenth District indicate further moderate
improvement in economic conditions. Retail sales continue to
improve, with generally stable prices. Prices of industrial inputs
have shown recent increases, however. Inventories of industrial
inputs and of retail goods are regarded as satisfactory, except
among automobile dealers. Both housing starts and house sales have
weakened, as have savings-inflows to savings and loan institutions.
Fall crops suffered from drought and other factors, and livestock
prices are falling as marketings increase. Both bank loan demand and
bank deposits have increased recently.
Retail Trade
Total dollar sales in the first nine months of 1983 increased up to
7 percent over the same period last year, with widespread
improvement reported for the past three months. Prices have been
generally stable in 1983 and are expected to remain so through the
end of the year. Inventory levels are reported to vary from
satisfactory to a little high. A normal seasonal upturn in sales is
expected for the rest of 1983, with the national recovery expected
to contribute to further improvement.
Automobile Sales
Automobile dealers throughout the Tenth District report improved
sales in 1983 from weak year-earlier levels, with the strongest
gains occurring in Missouri, Kansas, and Colorado. Sales of domestic
and import models are still being suppressed by low inventories.
Easing of automobile credit conditions is evident in more aggressive
marketing of automobile financing by banks. Banks are also
soliciting loans to finance dealers' floorplanning. The outlook for
the 1984 model year is very good, especially for mid-size to large-
size cars, which is expected to increase the domestic share of the
market.
Purchasing Agents
Almost half of the purchasing agents contacted report substantial
increases in input prices since October of last year. In the past
three months, almost all have experienced increases in the prices or
their major inputs. But on average, little or no further change in
input prices is expected through the and of the year. Few
difficulties are being experienced in getting materials and none are
expected through the remainder of 1983. In general, materials
inventories are at satisfactory levels. None of the respondents are
experiencing bottlenecks due to internal shortages of labor or plant
capacity.
Housing Activity and Finance
Housing starts have been slowed by recent increases in mortgage
rates, and further slowing beyond the usual seasonal decline is
expected in the months ahead. The rate of new home sales remains
relatively strong. New home prices have increased by 5 to 10 percent
this year. Materials prices are slightly higher than a year ago;
although lumber prices have declined somewhat since summer.
Materials price increases are expected to be modest the remainder of
the year. Savings inflows into savings and loans have declined from
their rapid first half pace and are expected to be about the same
this year as last. Rates on variable rate mortgages currently range
from 11.5 to 12.5 percent, while fixed rate mortgages carry rates
ranging from 13.75 to 15 percent. Interest rates are expected to
vary around current levels with no clear trend through yearend l983.
Agriculture
Agricultural conditions vary widely across the Tenth District, but
most bankers report that the summer drought has aggravated
conditions in an already depressed farm economy. Although irrigated
crops throughout the district produced record yields, Kansas,
Missouri, and Oklahoma were severely affected by the summer drought
and experienced large yield losses in fall harvested crops. All fall
harvested crops were adversely affected by insect damage.
Furthermore, New Mexico's milo, peanut, and cotton crops were
reported to have been damaged by premature frost and hail. The
planting of winter wheat is nearly complete in most district states
and the crop is generally reported to be in good condition. But in
isolated parts of Oklahoma, winter wheat may need to be reseeded due
to recent flooding. Livestock prices continue to fall as marketings
have increased due to rising feed costs and poor pasture conditions.
No widespread liquidation of herds, however, is reported. Sales of
farm equipment and farm inputs continue to be abnormally slow. The
expected yearend increase in demand for farm equipment has not yet
materialized, and probably will not. While some bankers in the Tenth
District are optimistic about agriculture in the coming year because
of high grain prices and fairly good yields, many others report an
increasing number of problem loans and farm foreclosures.
Banking
Loan demand at Tenth District banks has increased slightly over the
last month. Half of the respondents report an increase in commercial
and industrial loans and a third report some increase in residential
loans. The volume of consumer loans and agricultural loans has
remained essentially unchanged. Almost all respondent banks have
experienced an increase in total deposits during the last month. In
most cases, this has been due to an increase in demand deposits.
Conventional NOW accounts, Super-NOW accounts, MMDA's, and large
CD's show little or no change. There has been relatively little
response to the October 1. deregulation of small time deposits. All
but two respondent banks indicate that they are not actively
promoting the new, deregulated deposits. Most banks are paying about
the same interest rates on the new deposits as they had been paying
on the regulated deposits, and only a few banks have reduced their
minimum deposit requirements. Consumer interest in the deregulated
deposits has been weak, and most of the funds invested in them has
come from the rollover of previously regulated time deposits.