November 30, 1988
Overview
The pace of economic activity in the Tenth District remains
relatively slow. Many manufacturers report high capacity use rates
and some have had problems finding skilled labor. Retailers report
some improvement in sales recently, but automobile sales are steady
to lower. Housing activity remains slow, with weak sales and high
inventories of homes. Lower crude prices are leading oil companies
to reevaluate their drilling programs, but the number of active
drilling rigs was little changed from August to October. Loan demand
at district commercial banks has changed little, while deposits have
increased slightly. Solid farm incomes in spite of the drought are
being reflected in an active market for new and used farm machinery
and in strong farmland prices.
Retail Sales
Most respondents note a general improvement in retail sales over the
last three months. Prices are generally steady to slightly higher,
with most retailers reporting price adjustments primarily in
response to wholesale price increases. Inventory levels are
typically satisfactory, although some respondents report continuing
efforts to reduce their stocks. Retailers are cautiously optimistic
about future sales. With no "Black Monday" effect, expectations for
holiday season sales are more optimistic than last year at this
time. Moderate gains from last year's sales levels are expected.
Automobile Sales
Most respondents report steady to lower automobile sales over the
past month, and inventories are reported to be expanding. Adequate
dealer and customer financing are generally available. Little change
in sales is expected in the upcoming year.
Manufacturing
Most respondents report that materials inputs prices have risen
moderately compared with a year ago. Materials arc generally
available, but some lead times have lengthened. Many respondents
have been trimming their inventories but now are satisfied with
current levels. Capacity use rates vary widely across industries.
However, many firms are operating near full capacity, and some firms
report problems in finding skilled labor.
Energy
Weaker oil prices are causing oil companies to reevaluate their
drilling programs. October drilling activity was down almost a
fourth from a year ago, but the average number of active drilling
rigs in the district rose slightly from 261 in August to 265 in
October. One respondent noted that exploration and drilling in
Oklahoma has held up surprisingly well recently, partly due to
significant gas discoveries in the eastern part of the state.
Housing Activity and Finance
Activity in the housing sector remains sluggish. Homebuilders in the
Tenth District generally report that housing starts are down
compared with last year and stable to slightly higher compared with
last month. Multifamily construction continues to be the weakest
component. Most respondents report lower sales of new homes, and
home inventories are considered to be fairly high.
Most respondents at Tenth District saving and loan institutions report that savings inflows are little changed either from a year ago or from a month ago. Virtually all respondents expect little change in savings inflows in the near future. Mortgage demand has slowed recently, partly due to seasonal factors. Mortgage interest rates have remained steady or increased slightly recently, and are expected to increase further in the next several months.
Banking
District commercial banks report little change in loan demand over
the past month. Demand for commercial and industrial loans and
consumer loans was up slightly at a few institutions, while demand
for most other type of loans was either constant or down slightly.
None of the respondents changed their prime rates in the past month,
and virtually none of them expect any change soon. Consumer loan
rates were also unchanged at most of the banks surveyed, and no
change is anticipated in the near term. The behavior of deposits was
more variable. On average, deposits increased somewhat at district
banks, with greatest strength in large CDs and small time deposits.
Agriculture
The district's fall harvest indicates that the 1988 drought was
generally not as severe in the Tenth District as elsewhere. The
drought's effect on crop yields also varied widely across the
district. Although a return to normal weather patterns is likely for
the 1989 growing season, the drought's lingering effects on next
year's crops remain of concern. If depleted soil moisture is not
replenished, 1989 crops will be especially dependent on timely rains
during the growing season. Soil moisture and autumn rainfall
generally have been adequate for the early development of the
recently planted winter wheat crop. But low soil moisture reserves
are still of concern for corn and soybeans in northern Missouri and
eastern Nebraska.
Most ranchers are expected to maintain their herds through the winter months, in spite of high prices for drought-diminished forage supplies. Grazing of the winter wheat crop's early growth has eased demand for tight supplies of other forages. But high feed prices are still likely to limit any significant expansion in cattle herds despite currently high cattle prices.
The drought apparently has had little effect on agricultural credit conditions in the district. Most district lenders expect strong farm incomes and little change in loan repayment rates. Solid farm incomes are already being reflected in an active market for new and used farm machinery and in strong farmland prices. On balance, the 1985 drought appears to have had little adverse impact on district farmers or their lenders. And drought diminished crop inventories could brighten the farm outlook for the year ahead.