May 4, 1987
Overview
Only slight improvement is evident in Tenth District economic
activity. Retail sales, including auto sales, continue to improve
modestly. Retail prices have been relatively stable and are expected
to remain so, but manufacturers' purchasing agents report moderate
increases in input prices and expect further increases. Retail
inventories are satisfactory, but manufacturers are trimming their
inventories. Housing starts remain at the level of recent months.
The energy sector shows little significant recovery in spite of
firmer oil prices. Savings institutions report recent strength in
loan demand due mainly to mortgage refinancing and home equity
loans. Deposits at banks are generally constant or up slightly,
while loan demand varies across banks. The agricultural credit
picture appears somewhat brighter.
Retail Sales
Tenth District retailers report that sales are generally above year-ago levels. Retail sales also have improved slightly during the last
three months. Prices have changed little during the last three
months and are expected to remain relatively stable. Inventory
levels are satisfactory, but continue to be monitored closely. Most
retailers are optimistic that sales will be solid during the rest of
1987.
Automobile Sales
Automobile dealers report that sales were slightly stronger in
March. Inventories are generally high, however, and most dealers are
attempting to cut their stocks. Adequate financing was available for
both dealer inventories and customer sales. Nevertheless, most
dealers expect sales to decline from recent levels.
Purchasing Agents
Purchasing agents report moderate increases in input prices during
the last three months, and expect small price increases during the
next three months. Most materials are readily available, but some
purchasing agents report longer lead times for such inputs as lead
and steel. Firms are trimming their inventories slightly and plan to
continue trimming in the near future.
Housing Activity and Finance
Area homebuilders report that good weather has allowed housing
starts to remain at or slightly above last year's levels. Housing
starts are also about the same as last month. Single-family home
construction has been stronger than multifamily construction, with
the greatest strength in more expensive custom homes. Sales have
generally been in line with expectations, and new home inventories
are not causing undue concern. Home prices are stable to slightly
higher. Builders have had no unusual problems obtaining delivery of
construction materials, and materials prices have been relatively
stable.
Many savings institutions in the Tenth District have experienced weak deposit growth during the last year. In many cases, institutions have not competed aggressively for interest-sensitive deposits because of limited lending opportunities. The recent uncertainty surrounding recapitalization of the FSLIC has also dampened deposit inflows. Loan demand has been stronger recently because of mortgage refinancing and home equity loans. Mortgage delinquency and foreclosure rates are finally improving somewhat in the Tenth District. Most respondents believe the recent surge in mortgage rates is temporary and that rates will return to their former levels.
Energy
Significant recovery in the district's energy industry remains
elusive, despite firmer recent oil prices. Exploration and
development activity remains generally depressed. The average weekly
number of operating drilling rigs in the Tenth District increased
from 223 in February to 249 in March, two-thirds of the number
recorded a year earlier and only 16 percent of the peak number
reached in 1982.
Agriculture
Winter wheat conditions vary widely across the district. Many areas
are expecting an average harvest, but a wet fall significantly
reduced plantings in some regions and recent spring storms have
caused crop damage in a few areas. The wet weather has also brought
spring field work to a temporary halt across much of the district.
Severe weather also had an adverse effect on livestock in some parts
of the district. Some farmers and ranchers experienced significant
death loss in their spring calf crop due to the cold and snow.
Bankers do not expect the losses to affect the overall livestock
outlook for the district.
The agricultural credit picture in the district is somewhat brighter this spring than in past years. With 90 to 100 percent of loan arrangements completed, it appears that less than 5 percent of borrowers will be denied credit this spring—a marked improvement over the last several years.
Banking
Total loan demand was mixed, and total deposit activity was
generally constant or up at Tenth District banks during the past
month. The number of bankers reporting an increase in loan demand
was equal to the number reporting a decrease in loan demand. The
prime rate either remained constant or increased slightly at all
reporting banks, and is expected to remain constant or increase
slightly in the near term. Consumer loan rates generally remained
constant, and few bankers expect changes in the near term. All
categories of deposits except large CD's generally remained constant
or increased. Large CD's were mixed with the number of bankers
reporting en increase equal to the number reporting a decrease.