March 16, 1987
Overview
Some recent slight improvement in Tenth District economic activity
appears evident. While the energy sector remains weak, retail sales
continue to improve somewhat and inventories are regarded as lean
but satisfactory. Price increases remain moderate, both at retail
and for materials inputs. Housing starts are up somewhat, but the
demand for mortgage funds is somewhat weak and rates have softened a
bit in some areas. Loan demand at district commercial banks is down
slightly, while deposits are up. Credit conditions for farm
borrowers vary widely.
Retail sales
Tenth District retailers report that sales are generally unchanged
to slightly above year-earlier levels, depending partly on type of
stare and geographic location, Sales have shown some further
improvement during the last three months. Price increases have been
moderate, and prices are expected to remain relatively stable to
slightly higher. Inventories are reported to be at satisfactory
levels after some recent trimming. Retailers are optimistic that
sales will be solid during 1987.
Automobile sales
Auto dealers report that February auto sales were generally down
from previous months, partly due to the elimination of the sales tax
deduction. Most dealers have been trimming their inventories, and
are not overly optimistic about the outlook for future sales.
Purchasing agents
Purchasing agents generally report slightly to moderately higher
prices for major inputs but expect little additional change in the
period ahead. Materials supplies have been somewhat difficult to
maintain in some industries, with a few firms experiencing longer
lead times. Inventories have been kept lean deliberately and are
generally regarded as satisfactory. None of the respondents report
any production bottlenecks.
Energy
The district's energy industry remains weak. Uncertainty about the
ability of OPEC members to adhere to an agreement to restrict output
and fix prices has caused oil prices to remain somewhat volatile. As
a result, exploration and development activity in the district
remains generally depressed. The average weekly number of operating
drilling rigs in the Tenth District decreased from 272 in January to
226 in February, slightly more than half the number recorded a year
earlier.
Housing activity and finance
Area homebuilders report that housing starts are mixed compared to
year-earlier levels but have strengthened somewhat over the past
month. Multi-family housing construction is weak throughout the
District, while single-family housing construction is somewhat
stronger. Builders expect overall housing starts in 1987 to match
those of 1986. Sales of new homes remain good, with prices generally
stable to up slightly. Builders report no problems with either the
availability or delivery of housing materials, and materials prices
are stable. However, the U.S. induced export duty on Canadian
shingles and lumber leads most builders to anticipate a jump in
materials prices in the near future.
Most savings institutions report weak inflows or moderate outflows of savings over the last twelve months, but with some improvement in the last month. Most respondents expect some further improvement in the near future. Demand for mortgage funds is fairly weak, and opinions vary about future demand. Mortgage interest rates have softened a bit in some areas, but respondents generally expect slight increases in the future.
Banking
Total loan demand fell slightly at tenth District banks during the
past month, while total deposits rose. Demand weakened for
agricultural, commercial and industrial, and commercial real estate
loans, but was constant for residential real estate and consumer
loans. All respondents report that their prime rate did not change
and that they did not expect it to change in the near future.
Consumer loan rates were generally constant and no changes are
expected in the near-term. Balances in conventional NOW's, Super-
NOW's, MMDA's, IRA's, and passbook savings accounts tended to
increase. Demand deposits and large CD's tended to decrease, and
small time deposits remained constant.
Agriculture
Commercial lenders in the district are in the midst of annual credit
reviews for their farm borrowers. Some bankers expect to approve
credit for all their farm borrowers, although some borrowers may not
receive all that they request. Other agricultural lenders expect a
smaller proportion of their borrowers to be denied credit this year
than last year. A number of bankers, however, expect that up to 15
percent of their farm borrowers will be denied credit this spring, a
proportion as high or higher than a year ago. These mixed results
suggest that while some agricultural lenders have successfully rid
their portfolios of problem loans, others have not.
The Farmers' Home Administration's (FmHA) loan guarantee program has also met with mixed results. Some agricultural lenders are using few or no guarantees, because of the additional paperwork and past difficulties in securing FmHA approval. Other bankers are gradually increasing their use of FmHA loan guarantees, while still others are enthusiastically using the loan guarantee program for as many as 20 percent of their borrowers.
Most bankers have acquired farm real estate through foreclosures, and are handling the acquired property in a variety of ways. A few lenders are selling farmland as soon as possible after foreclosure, with little regard for price. In most cases, however, lenders note that most properties are not selling due to a lack of interested buyers. In the meantime, acquired farmland is being leased out by lenders—in some cases for the third consecutive year.