August 5, 1986
Overview
Economic activity in the Tenth District appears to be generally
sluggish. Significant weakness continues in the energy and
agricultural sectors, but housing activity is strong. Retail sales
are reported to be below year-earlier levels. Both retail
inventories and manufacturers' inventories of materials inputs are
being trimmed, an action expected to continue through the year. Loan
demand at commercial banks is mixed as consumer and agricultural
loan demand is down while residential real estate loan demand is up.
Wheat yields were somewhat above average, and a large corn crop is
expected that will put further downward pressure on corn prices.
Retail Trade
Retailers report year-to-date sales slightly below levels
established last year. Sales are expected to increase seasonally
through the rest of the year due to upcoming back-to-school and
Christmas buying activity. Prices, which have been stable the past
three months, are expected to increase slightly. Retailers generally
are trimming inventories slightly and expect to do so through the
rest of the year.
Automobile Sales
Auto sales are down slightly from last year, but dealers expect this
small sales slump to bottom out in the near future. Good credit
conditions exist, but they are helping sales only slightly. Most
dealers are trying to trim inventory levels, now viewed as a little
high.
Purchasing Agents
In general, purchasing agents report slightly lower input prices,
high inventory levels, and adequate availability of materials. Most
purchasing agents surveyed report input prices somewhat lower than a
year ago. However, they also report that prices have stabilized or
risen slightly in the last three months. Expectations are mixed
regarding price changes for the rest of the year. Most firms have
been trimming inventories and expect to continue to trim throughout
1986.
Housing Activity and Finance
Area homebuilders report that starts of single family dwellings have
increased sharply over the year ago period, while multifamily starts
have increased to a lesser extent. Most homebuilders expect housing
starts to remain strong during the remainder of the year. Sales of
new homes are near year ago levels, and new home prices have
remained steady. Builders also report good availability and steady
prices of materials.
Savings and loan institutions have generally experienced slightly lower savings inflows this year compared with a year ago. Most expect savings inflows through 1986 to remain flat or fall slightly. Mortgage activity continues to be strong, but is not dominated by demand for refinancing to the extent that it was earlier this year. Mortgage interest rates have been steady and are expected to remain stable at current levels for the rest of the year.
Energy
The substantial drop in oil prices in early 1986 and recent price
volatility continue to plague the District's energy industry.
Exploration and development activity remain depressed. The average
weekly number of operating drilling rigs in the Tenth District was
200 in June, compared with 550 in January and 221 in May. Further
declines in drilling and production are likely in the near term if
oil prices remain soft, as expected.
Agriculture
The wheat harvest is completed in the Tenth District except in
Wyoming and Nebraska. Yields reported were average to above average
in most of the district. Growers are expected to place much of this
year's wheat crop in storage under Commodity Credit Corporation
(CCC) loans. Storage space for the crop is reported to be generally
adequate.
Ample rainfall points to excellent crops of corn, milo, and cotton. The corn crop is approximately two weeks ahead of schedule in the district. A burdensome inventory of corn from previous crops and expectations of an exceptionally large crop in the making have forced the price of corn to life-of-contract lows on the Chicago Board of Trade. Of increasing concern to corn growers and their lenders is a critical shortage of storage space for the current crop. In some cases, grower efforts to place corn in storage under CCC loan may be thwarted by a lack of available storage space, forcing the sale of the grain at low harvest-time prices.
Rural communities remain under strain in the district. Bankers report that the pace of farm acquisition through foreclosure was the same or higher than a year ago. In addition, business conditions for local merchants are generally described as depressed.
Banking
Loan demand at Tenth District banks was mixed during the past month,
with nearly equal numbers of surveyed banks reporting increased loan
demand, lower loan demand, and unchanged loan demand. Among loan
categories, demand for consumer loans and demand for agricultural
loans were down, while demand for residential real estate loans was
up. Demand for commercial and industrial loans and demand for
commercial real estate loans were higher at some respondent banks,
and lower at others, Most banks lowered their prime rate one-half
percentage point; the rest expect to do so shortly. Most banks also
lowered their consumer lending rates. Most banks report either
increased or unchanged deposit activity. Demand deposits, NOW's,
MMDA's, and passbook savings accounts increased. Large CD's and
small time deposits were down almost uniformly.