January 30, 1985
Overview
With the important exception of agriculture, modest improvement
seems to characterize the Tenth District economy at the turn of the
year. Although Christmas sales generally fell short of expectations,
they were better than a year earlier and retailers are mildly
optimistic about 1985 sales. Retail inventories are higher than
desired and will be trimmed. Mortgage demand at thrift institutions
is expected to increase as mortgage rates are expected to remain
flat or decline slightly in early 1985. Both farmers and farm
lenders continue to experience difficulties, with little relief as
yet coming from the recent federal debt adjustment program. Interest
rates on farm operating loans have declined, however, as has the
prime rate. Both loan demand and deposits are up at district banks.
Retail Trade
Most retailers report that 1984 sales were up 5 to 10 percent over
1983. Oklahoma is an exception, as the depressed oil industry has
contributed to weaker sales. Consumer electronics are reported to be
selling very well in all areas. In recent months, respondents in
Kansas City and Denver report only moderate improvement while
elsewhere in the district sales are reported as flat to worsening.
Although Christmas sales compared favorably to previous years, they
fell short of the expectations of most retailers. Those expectations
led to higher than desired inventory levels and will likely cause
inventory purchases to decline. Retailers are mildly optimistic
about sales for 1985 and expect no significant price changes.
Automobile Dealers
About half of the automobile dealers contacted report recent sales
above year earlier levels. Easier credit market conditions have
allowed adequate financing for both dealer floorplanning and
customer purchases. Some respondents report large inventories, but
others say that inventory levels may not be satisfactory to meet the
strong demand expected in the near term. Most dealers expect 1985
sales to improve over 1984.
Purchasing Agents
Purchasing agents report input prices through the fourth quarter of
1984 up to 10 percent over a year earlier. They also expect price
increases in a range of 2 to 8 percent for 1985. Inventories are at
satisfactory levels but mote moderate further trimming is planned
for early 1985. There are no reports of problems in getting
materials.
Housing Activity and Finance
Homebuilders report that housing starts in 1984 exceeded those in
1983 with the biggest gain occurring in multi-family starts. Sales
of new homes in 1984 were at or slightly above 1983 sales. Prices of
new homes have remained about constant. Prices for most housing
materials have remained stable or have risen only slightly. The
demand for mortgage funds and mortgage commitments at savings and
loan institutions is expected to increase in 1985, but not before
spring. Mortgage rates in the first half of 1985 are expected to
remain near their current levels or decline slightly and then to
remain flat or rise slightly in the second half of 1985. Lower
minimum deposit requirements on MMDA's and Super NOW's have brought
improved inflows of new savings deposits to some institutions, while
others are not reducing minimum requirements at this time.
Agriculture
The Farmers Home Administration's (FmHA) new debt adjustment
program, effective November 1984, is meeting with only limited
success in the Tenth District. Although some non-FmHA borrowers and
lenders in Nebraska and Oklahoma have attempted to qualify for this
program, the overall response has been weak. Even where farm
borrowers have shown interest in the program, many are failing to
qualify. Agricultural bankers cite excessive paperwork and stringent
positive cash-flow requirements as reasons for the program's
apparent ineffectiveness to date.
Paydowns on agricultural loans at the end of 1984 were below average in most of the Tenth District, and below earlier expectations. Bankers in Missouri, Nebraska, Kansas, Oklahoma, and Colorado estimate that 50 to 90 percent of their farm borrowers made unsatisfactory or no loan paydowns in 1984. Several Tenth District banks report that 5 to 10 percent of their farm borrowers will receive no more credit. As a result, agricultural lenders expect to see more liquidations in 1985, and, therefore, they expect to experience losses.
Interest rates on operating loans have continued to decline, with rates ranging from 12.75 to 14.5 percent. Agricultural lenders in all district states but Oklahoma report interest rates falling by as much as one and a half percentage points over the past eight weeks. In Oklahoma, however, rates are largely unchanged at 14 to 14.5 percent.
Banking
Respondents at Tenth District banks report increased loan demand,
with advances in virtually all categories except agricultural loans,
which are unchanged. Deposits are also up, with demand deposits,
conventional NOW's, Super NOW's, IRA'S, large CD's, and MMDA's all
showing gains. Only small time deposits, which have been essentially
flat, and passbook savings accounts, which have shown some falloff,
have failed to advance. The prime rate stands at 10.75 percent at a
majority of the banks, with some banks coming down recently to 10.5
percent. Consumer lending rates have shown little change with few
banks having lowered their rates, but roughly half expect to do so
if the prime rate continues to fall. Most respondents have not yet
made a final decision about lowering the minimum deposit on MMDA's
and Super NOW's to the allowable $1,000; those that have reached a
decision have elected to do so. Lowering the minimum deposit is
viewed as necessary to match competitors, rather than as a means to
generate more deposits.