January 28, 1986
Overview
Economic activity in the Tenth District appears to have improved
slightly around yearend, with further improvement expected in 1986.
Christmas season sales, though not up to retailers' expectations,
contributed to a moderate increase in final quarter sales. Though
auto sales were sluggish at yearend, dealers are cautiously
optimistic for 1986. Inventories of retail goods and industrial
materials are generally viewed as satisfactory. Prices are expected
to be relatively stable both for inputs and at retail. Homebuilders
are optimistic for 1986 in spite of some weakness in 1985. Savings
inflows to thrift institutions are expected to increase and mortgage
rates are expected to stabilize. Total loan demand is stable and
total deposits are higher at commercial banks. Farm liquidations and
foreclosures remain a problem, in spite of some improvement in
yearend loan paydowns.
Retail trade
Retailers report a moderate increase in sales for the last three
months of 1985 over the same period a year earlier. Clothing sales
have been strong while home furnishing sales have been weak. Sales
are expected to increase slightly through 1986. Prices have been
stable and are expected to remain so. Generally, retailers are
satisfied with their inventory levels and expect to maintain them
throughout 1986. Sales for Christmas 1985 were relatively strong but
not up to retailers' expectations.
Automobile sales
Auto sales, healthy for most of 1985, slowed by yearend. But new
factory incentives and credit market conditions in general continue
to have a positive impact on sales. Dealers are cautiously
optimistic about new car sales in 1986. Most new car dealers are
generally satisfied with their inventories. Colorado dealers report
that inventories of used cars are too high, as factory sponsored
financing on new autos has resulted in a glut of used cars.
Purchasing agents
East purchasing agents surveyed had not experienced price increases
in the past three months and expect prices to remain fairly stable
through 1986, due to an ample supply of materials. Some firms have
trimmed materials inventory levels in recent months but most report
that current levels are satisfactory.
Housing activity and finance
Area homebuilders report that housing activity in 1985 was generally
below that of 1984, but they are somewhat optimistic for 1986.
Housing starts in 1985 are fewer than those in 1984. Both prices and
sales of new homes are generally at or slightly below 1984 levels.
Most area homebuilders expect housing starts, sales of new home and
prices of new homes for 1986 to be at or slightly above 1985 levels.
Prices of most housing materials in 1985 remained close to 1984
levels, with stable to slightly lower materials prices expected for
1986.
Savings and loan institutions give mixed reports regarding current savings inflows relative to a year earlier, but they expect savings inflows to increase in 1986. Respondents report constant mortgage demand and commitments and expect little change. Mortgage rates have been falling and most respondents expect them to remain at present levels in 1986.
Banking
Total loan demand was stable and total deposits were higher at Tenth
District banks compared with a month earlier. Consumer loans,
commercial and industrial loans, and residential real estate loans
were generally constant. Commercial real estate lending decreased at
most of the banks surveyed, while agricultural lending was steady to
slightly lower. Tenth District bankers did not change either their
prime rate or their consumer loan rates during the last month, and
most did not anticipate any rate changes in the near future. Total
deposits rose at Tenth District banks. Most respondents report
higher levels of demand deposits and MMDA's. Super NOW accounts,
small time deposits, and large certificates of deposit typically
were constant, while changes in NOW accounts were mixed. Passbook
savings accounts continued their recent pattern of decline. Bankers
are beginning to see the usual seasonal inflows into IRA and Keogh
accounts. Tenth District banks, in general, have not changed the
minimum balances on their Super NOW's and MMDA's in response to
recent deregulation. Several bankers were considering changes in
minimum balances, however, though most respondents doubted
significant effects on the kinds of deposits held by bank customers.
Agriculture
Paydowns on agricultural loans at the end of 1985 generally were
reported to be satisfactory in the Tenth District. For most banks,
1985 marked an improved yearend paydown situation over a year
earlier. Excellent crop yields and stronger year-end livestock
prices accounted for the better than expected loan situation. Even
so, bankers report that they will not carry all of their current
farm accounts through 1986. Some borrowers are being sent to
alternative lenders, while in cases of extreme financial stress
backers are urging operators to liquidate part of their assets.
Voluntary farm liquidations are running above normal in most areas.
Few bankers are resorting to foreclosure as an immediate solution to
failing loans, though most indicate that foreclosure is a future
possibility for some borrowers. Farm Credit System (FCS) lenders in
some parts of the district have not had as much foreclosure
flexibility as the commercial banks. FCS outlets operating under a
burden of troubled loans continue to follow strict loan review
guidelines. Bankers report that the recent FCS bailout legislation
has done little to alter the behavior of the FCS outlets in their
area. Only a slight upswing in equipment sales was evident at the
end of 1985.