September 10, 1986
Overview
Economic activity in the Tenth District remains generally sluggish
While housing activity continues to be stronger than a year earlier,
starts are expected to flatten or decline for the rest of the year.
Retail sales are up slightly from a year earlier and some further
improvement is expected. Auto dealers are not optimistic, however.
Both retail inventories and manufacturers' inventories of materials
inputs are generally regarded as satisfactory. Large additions to
supplies of wheat, corn, and cattle on feed have occurred or are
expected. Savings and loan institutions expect a leveling off of
both mortgage demand and savings inflows. Loan demand at district
commercial banks decreased in the past month while deposits
increased.
Retail Trade
Retailers report that year-to-date sales are moderately better than
levels established a year ago. Sales in coming months are expected
to run slightly higher as well. Prices have been stable and are
expected to remain stable. Inventories are generally satisfactory.
No unusual sales or promotions are anticipated, and inventory
purchases should be only slightly below last year's levels.
Automobile Sales
Most dealers report that auto sales have been slow during the last
month. Financing is readily available, but favorable credit
conditions have not stimulated sales. All dealers report that
inventory levels are high. Most dealers are not optimistic that
sales will improve in the near future.
Purchasing Agents
In general, purchasing agents report slightly higher input prices,
satisfactory inventory levels, and adequate availability of
materials. Most purchasing agents surveyed report that input prices
are slightly higher than a year ago but are expected to remain
stable for the remainder of the year. With some trimming behind
them, firms are now satisfied with current materials inventory
levels.
Housing Activity and Finance
Area homebuilders report starts of single family dwellings up over a
year ago, with starts of multifamily dwellings also up but to a
lesser degree. However, most homebuilders expect housing starts to
remain flat or fall slightly during the remainder of the year. Sales
of new homes are near year ago levels, and new home prices have
remained steady. Builders generally report good availability and
steady prices of materials.
Savings and loan institutions have been experiencing slightly lower savings inflows compared to those of a year ago. Most expect savings inflows to remain flat in the near future. Demand for mortgage funds has been declining lately after large increases earlier in the year. Expectations are for a leveling off of mortgage demand in the near future. Mortgage interest rates have been falling slightly and are expected to continue to do so over the remainder of the year.
Energy
The district's energy industry remains beset both by the substantial
drop in world crude oil prices earlier this year and by recent price
volatility. The average weekly number of operating drilling rigs in
the District was 188 in July, compared with 550 in January and 200
in June. Despite an agreement by OPEC members to cut output
temporarily, domestic exploration and development activity is
expected to remain depressed. The OPEC agreement has caused oil
prices to firm in recent weeks, however, possibly stalling the
decline in drilling and production in district states.
Agriculture
Following a winter wheat harvest that was average to above average
throughout the Tenth District, agricultural lenders report that most
wheat farmers have been able to service operating loans on schedule.
The rate of loan paydown has improved since last year except in
northcentral Oklahoma, where wheat yields were well below average.
Some farmers in this area are now refinancing operating debt.
Storage space for the wheat harvest was generally adequate. A severe shortage of storage space is expected to develop with the harvest of the milo and corn crops. Farmers unable to secure sufficient storage space for their crops will be forced to store grain in temporary facilities or to sell grain at very low harvest-time prices.
District agricultural bankers report that the ranching industry remains depressed. Nonetheless, most cow-calf ranchers have been able to maintain solvency. Ranchers with adequate cash flow are expected to hold spring-born calves through the winter to be sold as yearlings next spring. Cattle feeding activity in the district has increased over that of one year ago, and feedlots are expected to be filled to capacity by yearend.
Banking
Loan demand at Tenth District banks fell during the past month,
largely due to a decrease in commercial and industrial loans.
Agricultural loans were also down slightly. Among the remaining loan
categories, residential real estate loans rose while consumer and
commercial real estate loans were flat. Most banks lowered their
prime rate one-half percentage point and expect further declines.
Consumer lending rates fell at one-half of the respondent banks and
remained constant at the other half. Further changes in the near
term were expected by one-half of the respondents and not expected
by the other half. Deposits rose at the respondent banks, largely
due to an increase in MMDA's. NOW and passbook savings accounts also
rose slightly. Demand deposits, IRA's, large CD's, and small time
deposits were flat.