June 25, 1985
Economic activity in the Tenth District appears to be relatively sluggish. Retail sales are down slightly from a year ago, although auto sales remain comparable to sales a year earlier. Prices remain generally stable, at retail and for manufacturers' inputs. Housing starts are also off from a year ago, though sales of new homes are generally up. Future mortgage demand is expected to be stronger, as rates are expected to decline further. Agricultural lenders and borrowers in the district are both facing continuing difficulties. A good winter wheat harvest is well under way in Tenth District states. Bank loan demand is flat while deposits are generally higher.
Retail trade
Most retailers report that sales are down slightly from year-ago
levels. Clothing, home furnishings, appliances, and electronic items
are all selling more slowly. As a result, some retailers are
trimming their inventories. Most retailers expect sales to pick up
before yearend, however, and plan no major cutbacks in inventories.
Retail prices remained stable during the past three months and are
expected to remain stable in the near future.
Automobile dealers
Automobile dealers report that sales are comparable with year-ago
levels. Sales are being spurred by manufacturers' low financing
rates and, to a less extent, by recent declines in other interest
rates. Inventory levels are largely satisfactory, and caution rules
out inventory building in the near future. Most dealers, however,
are optimistic that 1985 sales will be as good or slightly better
than strong 1984 sales.
Purchasing agents
Purchasing agents report that input prices remained constant during
the past three months. Most expect constant input prices through the
end of the year. No difficulties in obtaining materials are
reported, and none are anticipated. Satisfaction with current
materials inventories is mixed. Most agents report some trimming of
inventories due to seasonal and firm-specific factors.
Housing activity and finance
Homebuilders report that housing starts are down slightly to sharply
from a year ago. Starts are expected to remain steady or increase
slightly through the end of the year. Building materials are readily
available, and materials prices are stable or rising slowly. Sales
of new homes are generally up, as are new home prices. Savings and
loans report that mortgage demand and commitments are up except in
Colorado and Wyoming. Future mortgage demand is expected to be
strong, since mortgage rates have declined recently and are expected
to decline further. Savings and loans report larger savings inflows
than a year ago but expect inflows to slow in the near future.
Agriculture
Agricultural lenders throughout the Tenth District are continuing to
write down the value of farm assets, both because examiners are
pressing banks to keep up with declining asset values, and for
closer monitoring of loans. Some lenders in Missouri and Oklahoma
report that their banks have already written farm asset values down
to market levels. Aggressive writing down of asset values may cause
these banks to reconsider the creditworthiness of some borrowers.
Agencies of the farm credit system—Production Credit Associations
(PCAs) and Federal Land Bank Associations (FLBAs)—appear to be
writing down farm asset values as well. Bankers in Nebraska and
Colorado report that some farm credit system borrowers are looking
for new lenders due in part to rising interest rates on farm credit
loans, and to perceived risk associated with capital stock in the
PCA's and FLBA's.
Nebraska and Colorado have been especially hard hit by agricultural bank closings this year. In both states, farm borrowers at closed banks are having difficulty finding alternative sources of credit. Agricultural lenders in these states report that successor banks have applied higher credit standards, and other banks generally are not picking up customers of failed banks. As many as half of these customers may be unable to find new sources of credit.
The wheat crop in the Tenth District is expected to be very good. Until interrupted by recent rains, the harvest in Oklahoma and southern Kansas was running a week to ten days ahead of schedule, and is 95 percent complete in southwest Oklahoma.
Spring planting of corn, soybeans, and sorghum in the Tenth District is generally on schedule, and in some cases well ahead of the usual date. Successful spring planting has produced optimism about crop production prospects for the 1985 season, with crop conditions overall reported as good to excellent.
Banking
Tenth District banks report total loan demand was constant during
the last month. Commercial and industrial loans were steady, but
consumer loan demand grew somewhat. Residential and commercial real
estate lending were stable, although the strength of real estate
loan demand varied widely by locality. Several bankers note that the
level of agricultural lending remains low and that loan quality
problems persist. All surveyed banks reduced their prime rate during
the last month, but only half lowered consumer loan rates. Total
deposits were generally higher with widespread growth in demand
deposits, Super NOWs, and MMDAs. Although inflows subsided after the
April 15 tax deadline, IRA and Keogh accounts still rose slightly
over the month.