October 18, 1988
Overview
The pace of economic activity in the Tenth District is relatively
slow. Retailers report a slight recent improvement in sales, as do
auto dealers, and most manufacturing respondents report high
capacity use rates. While retail inventories are larger than
desired, manufacturing materials inventories are generally
satisfactory. Housing activity is fairly stable, and home mortgage
demand at savings and loan institutions is relatively weak. Loan
demand at district commercial banks has been nearly constant
recently, while deposits have grown modestly. While some parts of
the district were severely affected by drought, higher prices and
near-normal crop yields have maintained farm income in other parts.
Retail Sales
Retailers generally report weak sales compared with a year ago, but
some note a slight improvement from earlier this year. A number of
respondents attribute the recent improvement to greater promotional
efforts. Promotional efforts have also helped hold down price
increases. Retailers generally have inventories that are larger than
desired, and are trying to trim them. Efforts to trim inventories
are expected to continue, except for seasonal increases. Most
respondents expect sales increases for the rest of the year to be
moderate at best.
Automobile Sales
Most automobile dealers report steady or improved sales over the
past month. Inventories are expanding as dealers receive 1989
models. Dealers expect sales to be stable or up slightly during the
remainder of the year.
Manufacturing
Most respondents report that materials inputs continue to be readily
available, and some shortening of lead times has occurred. The pace
of price increases for inputs has apparently slowed somewhat. Most
respondents are satisfied with their inventory levels, after some
recent trimming. Little further change in inventories is planned.
Capacity use rates are high for most respondents, but no real
bottleneck problems were reported.
Housing Activity and Finance
Activity in the housing sector remains fairly stable. Homebuilders
report housing starts at or above both last month's and last year's
levels. Single-family construction has improved slightly, while
multi-family construction continues to be weak. New home sales are
stable with some increases in inventories of new homes. No problems
are reported regarding materials availability or delivery times.
Most savings and loan respondents report that savings deposit inflows are near year-ago and month-ago levels. Respondents expect inflows to remain steady or increase slightly during the reminder of 1988. In general, mortgage activity has been weak, and this weakness is expected to continue through yearend. Mortgage rates have moved in a narrow range recently and are expected to remain near current levels for the rest of the year.
Banking
District bankers report little change in banking condition during
the past month. Overall loan demand rained nearly constant, although
demand for residential and commercial real estate loans rose
slightly. The bankers report that the recent round of lending rate
increases is drawing to a close. Most respondents held their prime
lending rate steady the past month and expect no change in the near
future. A few bankers, however, either recently increased their
prime lending rate by 25 to 50 points or expect a slight increase.
Consumer lending rates were constant to slightly higher during the
month. Little change in consumer rates is expected in the near term.
On average, deposits grew modestly at the respondent banks. Several
bankers report a shift in savings from Money Market Deposit Accounts
to time and savings certificates and deposits bearing a slightly
higher rate of return.
Agriculture
Crop conditions vary widely across the district as winter wheat
seeding nears completion and row crop harvest continues. Rainfall
slowed the harvest of row crops during the latter part of September,
but the harvest is now progressing well across most of the district.
Irrigated crops are generally in very good condition throughout the
district, and normal yields are expected. Dryland corn and soybeans
in eastern Nebraska and northern Missouri were severely affected by
the drought, and yields will be well below normal. Milo yields in
Nebraska are down due to a severe greenbug infestation. In other
areas of the district, however, near-normal crop yields and higher
prices are helping to maintain farm incomes.
On balance, district bankers report that the rate of farmer participation in the wheat price-support program is nearly unchanged from last year's rate. On one hand, a sharply higher market price for wheat has diminished the incentive for farmers to participate in the federal price support program for wheat. On the ether hand, a reduction in the percentage of wheat base acres that program participants must hold out of production encourages program participation.
The new winter wheat crop received beneficial September rains that promoted development of winter wheat pastures, but additional rainfall will be required to ensure adequate grazing conditions in many areas. In the absence of adequate wheat pastures, feed stocks could be strained during a severe winter. Ranchers would then be forced to buy high-priced feed or liquidate herds. At present, most district ranchers plan to maintain herds through the winter in anticipation of higher cattle prices next spring.