September 8, 1987
Overview
Some modest improvement is apparent in Tenth District economic
activity. Overall retail sales are growing slightly and new car
sales are somewhat stronger. Manufacturers' purchasing agents report
further price increases for inputs but materials generally remain
readily available. Some limited improvement has occurred in oil
exploration and development activity. Little strength is present in
the housing sector. Loan demand at district banks has weakened
recently. Fall crop yields are expected to be generally above
average. Little expansion is evident in the livestock sector.
Retail Sales
A majority of respondents report sales above year-ago levels. Most
also report growing sales over the past three months, though a few
report constant or declining activity. Prices have been generally
stable over the past three months. About half of the retailers
surveyed report increasing inventories, while the rest report stable
stocks. Expectations of future inventory change are also mixed. Most
respondents expect stronger sales ahead.
Automobile Sales
Automobile dealers generally report that sales are steady to
slightly stronger in August. Inventories are trim as dealers await
1988 models. Adequate financing is available for both dealer
inventories and customer purchases. Dealers are hopeful that sales
will be stable to up slightly during the remainder of 1987.
Purchasing Agents
Purchasing agents report that prices have generally increased over a
year ago, with the greatest increases occurring in oil derivatives
such as plastics and in textile inputs such as cotton cloth. Most
respondents expect increases to level off in the next quarter.
Materials are generally readily available and few problems are
expected for the remainder of the year. Inventory levels are
generally satisfactory with some trimming and seasonal adjustments
being made. Many agents report that plants are running near
capacity.
Energy
After tensions in the Persian Gulf pushed domestic spot prices into
the $20-$22 range, reports that OPEC has been producing in excess of
its quota have sent domestic prices back down to the $l8-$20 range.
This volatility will likely prevent a strong rebound in the
district's energy industry in the near future. But some limited
improvement in exploration and development activity has been
observed. The average weekly number of operating drilling rigs in
the Tenth District increased from 232 in June to 273 in July, 45
percent above the year-ago level. Nevertheless, the rig count in the
district remains less than one-fifth of its 1982 peak.
Housing Activity and Finance
District homebuilders report that housing starts remain at or above
last year's levels, but generally down from a month ago. Single-
family home construction remains stronger than multi-family
construction. Looking ahead, homebuilders expect housing starts to
stabilize. Most homebuilders report that new home sales are up and
inventories are down, with house prices rising at about the rate of
inflation. Builders have had no problems with materials availability
and they expect none in the foreseeable future.
Deposit growth at Tenth District savings institutions is reported down from a year ago. However, there has been a recent slight improvement in savings inflows. Demand for mortgage funds has been slow and is expected to remain steady or improve somewhat during the remainder of 1987. Mortgage rates, which have been to steady to firming recently, are generally expected to remain steady or increase slightly during the rest of 1987.
Banking
Respondents report that total loan demand fell slightly at Tenth
District banks during the past month. Demand weakened slightly for
commercial and industrial, consumer, and residential real estate
loans. Demand fell off more sharply for commercial real estate
loans, while demand for agriculture loans held steady. Respondents
report no change in their prime rates, and virtually none expect any
change in the near term. No changes in consumer loan rates were
reported, and, again, no changes are expected. Balances in all types
of deposit accounts generally remained constant, though there are
scattered reports of changes, both up and down.
Agriculture
Fall crops are doing well across most of the Tenth District as the
harvest approaches. Good moisture and warm weather combined for an
excellent growing season, and corn, milo and soybean yields are
expected to be above average in many parts of the district. In parts
of mid-Missouri where the corn harvest has already begun, yields up
to 30 percent above normal have been reported. The expectation of
exceptional yields has created some concern about storage capacity
around the district. Although most areas report adequate storage,
some limited storage expansion is underway. In other areas,
harvested crops may have to be put on the market as storage
facilities are filled.
There are a few signs of limited expansion in hog inventories in Kansas and Nebraska. However, most operators in the district are not expanding, afraid that currently high hog prices will not hold. Similarly, there has been little or no expansion in district cattle herds, though cattle prices remain relatively strong. Many district feedlots are currently running well below capacity, in anticipation of a large seasonal influx of feeder cattle this fall.