June 15, 1988
Summary
The economy of the Tenth District continues to make modest gains.
Variation across the district and among industries is evident,
however, in comments of directors and small business council
members. Retail sales overall are generally weak, although new car
sales are steady to slightly better. Prices of manufacturers' inputs
continue to rise, and lead times have increased somewhat for some
materials. Conditions are generally stable in the district energy
sector. New home sales have slowed and housing starts are at or
slightly below last month's levels. Total deposits at commercial
banks are up from a month ago and loan demand is generally stronger.
Dry weather is now the principal concern for district crop farmers.
Retail Sales
Tenth District retailers report that overall sales are generally
weak. Competition and slow sales are tending to restrain price
increases. Nearly all respondents report some trimming of
inventories as well as continued tight inventory management. Most
hope to reduce inventories further. Sales are expected to show
little improvement in the months ahead.
Automobile Sales
Automobile dealers generally report that sales are holding steady to
increasing slightly. Inventories are generally stable to expanding
slightly. Adequate financing is available for both dealer
inventories and customer purchases. Overall, dealers are fairly
optimistic about sales for the rest of the year.
Manufacturing
Input prices have continued to rise over the past three months, and
most respondents expect further increases in the period ahead. While
materials are generally available, lead times have increased
somewhat and some materials are becoming harder to get. Respondents
are generally satisfied with inventory levels, with few plans to
change them. Capacity utilization rates vary widely, ranging from 70
percent to nearly full utilization.
Energy
Conditions in the district's energy industry have been relatively
stable, reflecting recent stability in crude oil prices. The average
weekly number of operating drilling rigs in the Tenth District was
279 in April and March, but fell to 254 in May. Despite the recent
decline in drilling activity, the rig count remains about 6 percent
above the average recorded in May 1987.
Housing Activity and Finance
After strengthening the last few months, housing market activity has
leveled off recently. New home sales are reported slow. Most
homebuilders report housing starts at or slightly below last month's
levels and down significantly from a year earlier. Although housing
starts have leveled off, most respondents expect improvements in the
near future. No problems are reported regarding prices,
availability, or delivery times for construction materials.
Nearly all thrift institution respondents report that savings deposit inflows are near or above year ago levels. Most respondents expect flat or slightly increasing inflows in the near future. In general, recent mortgage activity has been weak. Mortgage rates are reported to be trending higher and are expected to stabilize or rise slightly further in the near term.
Banking
District commercial bankers report generally stronger loan demand
over the past month. Demand for commercial and industrial loans,
residential real estate loans, and commercial real estate loans have
shown the most strength, while demand for consumer loans and
agricultural loans have, on balance, shown little change. All but
one of the respondents report they increased their prime rate one-
half percentage point in the past month. Slightly more than half
expect to increase their prime rate in the near future. The rest
expect to make no change in their prime rate. Most respondents
report consumer lending rates have been stable. Expectations about
consumer lending rates are about evenly divided between no change
and some increase. Total deposits are reported up over a month ago.
MMDA's, passbook savings accounts, and small time deposits account
for almost all of the growth. Demand deposits, conventional NOW
accounts, Super-NOW accounts, IRA's/Keogh's, and large CD's are, on
balance, little changed.
Agriculture
Dry weather is the principal concern across the Tenth District as
farmers prepare to harvest the winter wheat crop and finish planting
spring crops. A lack of moisture early in the year and a virus-
caused disease, wheat streak mosaic, are likely to cause what yields
in parts of Kansas and Nebraska to range from average to well below
average. Late spring rains, however, boosted prospective wheat
yields in other areas of the district and will likely sustain the
crop to harvest. Respondents in Oklahoma, Colorado, and central and
western Kansas report that wheat yields in their areas could be
average to just above average.
Spring planting is nearing completion across the district. Corn planting is virtually completed and planting of other crops is on schedule. Moisture conditions have improved and are now adequate, following a period of drought stress for the spring-planted crops.
Respondents report that 90 to 100 percent of district farmers are participating in government wheat and feedgrain programs this year. Despite a recent surge in soybean prices, very little land was switched from corn production to soybean production. Farmers are likely to be very cautious in switching land out of corn production because that would reduce the acreage eligible for participation in future farm programs. In addition, planting decisions had generally been made before the sharp rise in soybean prices occurred.