May 6, 1986
Overview
Recent improvements are reported in economic activity and the
economic outlook in the Tenth District, apart from the agricultural and energy
sectors which remain depressed. General retail sales are improving and
retailers are optimistic about the rest of 1986. Auto sales are weaker,
however, and dealers expect lagging sales throughout the year. Both retailers
and manufacturers' purchasing agents expect reduced inventory purchases.
Housing activity is expected to remain strong, except for some soft local
markets. Much of the increased mortgage demand is for refinancing. Loan
demand at commercial banks remains mixed, and deposits are higher.
Agricultural lenders report somewhat tighter credit conditions than a year
earlier.
Retail trade
The outlook for retail sales and prices is generally
positive. Retailers report that sales remain higher than a year ago and
recently have been improving. Sales of men's and women's apparel were
particularly strong over the last three months. Retailers are optimistic that
sales will stay above year-ago levels. Prices have been steady and are
expected to change little over the rest of the year. Because inventory levels
range from satisfactory to high, leading retailers expect steady to slightly
reduced inventory purchases for the remainder of 1986.
Automobile sales
Auto sales typically are down compared with a year
ago. Although financing is readily available, favorable credit conditions
have not stimulated sales. Most dealers report their inventory levels are
acceptable to slightly high. Dealers expect that automobile sales will
continue to lag behind 1985 levels throughout the remainder of the year.
Purchasing agents
Most purchasing agents have seen little or no change
in the prices of their major inputs compared with a year earlier. Moreover,
no substantial price changes are expected for the remainder of 1986. Most
firms have been trimming their materials inventory levels and plan to continue
this process through the rest of the year. Purchasing agents generally are
experiencing no problems with the availability or delivery of materials.
Housing activity and finance
Tenth District housing activity varies
widely depending on the strength of the local markets. In some areas
experiencing economic hardships, the demand for new houses has dropped
dramatically and is expected to remain at a low level for the rest of the
year. However, homebuilders in most areas report that starts of single-family
dwellings have increased over the year-ago period, while multifamily starts
have declined. These builders expect that housing starts will remain
relatively strong over the rest of this year. Builders report good
availability of housing materials and no delivery problems. Most materials
prices are steady, though some builders are encountering higher lumber prices.
Savings and loan institutions have experienced reduced savings inflows relative to a year earlier, but give mixed reports about their expectations for the months ahead. Mortgage activity continues to increase mainly because of the strong demand for refinancing. In areas where homes are selling, mortgage demand is expected to increase further over the next few months. Mortgage rates have been declining along with rates nationwide. Most respondents expect mortgage rates to fall a little more but feel that increases could occur later in the year.
Energy
The downward slide in crude oil prices and a persistent surplus
of natural gas have led to lower exploration, development, and production
activity in the Tenth District. The average weekly number of operating
drilling rigs fell from 550 in January to 327 in March. Production from highcost stripper wells has been curtailed and substantial further cuts are
expected if crude oil prices remain in the $12 to $15 per barrel range.
Banking
For a second month in a row, total loan demand was mixed and
total deposits were higher at Tenth District banks. Residential real estate
loans were generally up while consumer loans were mixed and commercial and
industrial loans, agricultural loans, and commercial real estate loans were
constant to down. Roughly half of the bankers surveyed lowered their prime
rate during the last month, and a majority expected further declines even
before the latest discount rate cut. Nearly half of the respondents lowered
their consumer loan rates during the last month and another half look for
declines in the near future. Total deposits rose at Tenth District banks,
with categories other than large CD's and passbook savings all generally
registering gains.
Agriculture
A good winter wheat crop is reported throughout most of
the Tenth District. Due to the relatively mild winter weather, the crop is
progressing on schedule. But a fairly dry spring for many winter wheat
regions may soon cause the crop to begin to show signs of stress. With the
dry mild weather conditions, field work for planting other crops is running on
schedule or ahead of schedule.
District lenders are completing their spring loan arrangements. In some areas up to 10 percent of borrowers have been denied credit, though about 5 percent seems to be more representative. Even lenders not denying credit to clients report that conditions are somewhat tighter than last year, and the number of marginal borrowers is up from a year ago.
The dairy herd buy-out program has provoked strong emotional responses from cattlemen in the Tenth District. Weakened cattle prices are being blamed, wholly or in part, on the buy-out. Though bankers in a few areas report that cattle may have been withheld from the market in response to the lower prices, most indicate that markets have not been disrupted.