December 6, 1989
Overview
The Tenth District economy continues to grow moderately. Although
auto sales are weak, other retail sales have improved over the past
three months. Auto and other retail inventories are above desired
levels. In the manufacturing sector, slowing sales have contributed
to leveling off of input prices and ready availability of most
inputs. Some manufacturers expect to cut back on production unless
sales improve. Resource industries continue to improve, as farm
incomes remain strong and exploration for natural gas boosts
drilling activity.
Retail Sales
District retailers report higher sales than a year ago, with
improvement over the past three months. Demand for retail goods
varies across the district. Winter apparel sales have generally been
slow due to unseasonably warm weather. Prices have held steady or
decreased in recent months. Most respondents report higher than
usual inventories due to warm weather and expansion for the
Christmas season. Inventory purchases will remain on hold through
the rest of the year. Retailers expect holiday sales to exceed year
ago levels, and some expect price reductions over the period.
Automobile dealers report weak new car sales over the last month.
Most dealers are trying to trim inventories and expect little
improvement in sales during the coming months.
Manufacturing
Purchasing agents report input prices have remained steady or
increased slightly from three months ago and have increased 3 to 5
percent from a year ago. Few price changes are expected over the
next three months. Inputs are readily available, except for silicon
used for computer components and certain wood products, while lead
times have generally remained about the same. Most firms are
satisfied with inventory levels after trimming them in recent months
for seasonal reasons and to increase efficiency. But some firms plan
continued modest inventory reductions during upcoming months. Most
plants are operating near full capacity, with no reports of
bottlenecks from labor shortages or inadequate plant capacity.
However, there are some indications that operations soon will be
scaled back because of slowing sales.
Energy
Stable oil prices and increased exploration for natural gas continue
to push district drilling activity above year-ago levels. The
average number of active drilling rigs in the district increased
from 289 in September to 312 in October, the fourth consecutive
month of increase. Thus, drilling activity stands nearly a fifth
higher than one year ago.
Housing Activity and Finance
District housing starts have increased from a year ago, and most
homebuilders report starts steady or ahead of last month. New home
sales have generally been steady, with prices increasing. Stable
housing activity is expected in coming months.
Most respondents from district savings and loan institutions report net deposit outflows over the past month, although deposit flows were more mixed than last month or a year ago. Expectations for future deposit flows vary. Healthy savings institutions expect greater inflows, while troubled savings institutions expect greater outflows. Mortgage demand remains weak, with continued weakness expected until spring. Respondents report steady to slightly lower mortgage rates and believe rates will decline in coming months.
Banking
District bankers report increased loan demand over the last month.
Increases occurred in commercial and industrial loans, consumer
loans, and mortgage loans. Home equity loans, commercial real estate
loans, and agricultural loans were unchanged. Most bankers either
have reduced their prime rate recently or expect to do so in the
near future. Consumer loan rates were mostly unchanged, however, and
generally are not expected to change in the near term. Deposits
increased during the past month, primarily because of large gains in
NOW accounts. Other deposit categories either increased slightly or
were unchanged. With both loan demand and deposits increasing, loan-
deposit ratios were relatively stable over the last month.
Agriculture
Yields of fall crops ranged from below normal to normal across the
district. Early cold weather cut yields of the Kansas milo crop and
the Oklahoma cotton crop. Corn and soybean yields were generally
normal in the district, except for reduced soybean yields in
northern Missouri due to the drought. Most of the new winter wheat
crop is in good condition, but dry weather has left the crop
susceptible to cold weather damage.
The supply of pastures and forages should be sufficient to meet livestock feeding needs throughout most of the district this winter. Where rainfall has not been sufficient to support grazing of the winter wheat crop, cattle herds are being sustained with hay and other forages. Ample forage supplies combined with strong cattle prices have encouraged some district cattle producers to begin expanding herds.
District bankers expect little change in generally strong farm credit conditions, but reduced crop yields and lower crop prices in some parts of the district may slow the rate of paydown and increase the carryover on farm operating loans. In most of the district, however, near-normal crop yields and strong livestock prices have maintained high farm incomes, leading district bankers to expect farm loan paydowns to reach last year's high level.