May 2, 1990
Overview
The Tenth District economy continues to grow modestly. Retail sales
are up from a year earlier, and auto sales are beginning to pick up
a bit in some district states. Manufacturing plants continue to
operate below capacity, though a few are experiencing skilled labor
shortages. Oil and gas exploration and development remain stronger
than a year ago. Housing activity is down from a year ago, but
starts have increased recently due to warmer weather. Mortgage
demand is weak at thrift institutions, and loan demand at commercial
banks is generally steady to down from a month ago. Small businesses
report only slight tightening in the availability of credit to them
from traditional sources. Little if any such tightening is reported
by agricultural borrowers. Rural nonfarm businesses are benefiting
from the improved performance of the agricultural sector.
Retail Sales
Most district retailers report higher sales over last year, but
mixed sales over the last three months. Some improvement in sales is
expected in the next few months. Retailers are generally satisfied
with current inventories and will try to keep them at current
levels. Prices have changed in line with cost increases and are
expected to change little in the near future. New auto sales have
improved slightly in some district states but remain sluggish in
others. Some dealers report tighter credit terms for potential
buyers. Most dealers continue trimming inventories in expectation of
only slightly higher sales in coming months.
Manufacturing
Most purchasing agents report moderate input price increases from a
year ago. Prices have been fairly steady over the last three months
and are expected to remain so or to increase slightly over the next
three months. Materials inputs are readily available, and purchasing
agents expect no problems in obtaining materials for the rest of the
year. Lead times on certain inputs have increased slightly, however.
Most firms continue trying to trim inventories. Plants are operating
below capacity, though a few are experiencing skilled labor
shortages.
Energy
Oil prices were expected to soften in the second quarter, but high
OPEC production and weak world demand caused prices to fall faster
than anticipated. Already down $3 from their mid-winter peak, prices
declined an additional $2 a barrel during the first two weeks of
April. Despite softer prices, exploration and development activity
in the district has increased from a year ago. The district rig
count fell from 255 in February to 226 in March, but was 7 percent
above the rig count in March 1989.
Housing Activity and Finance
District housing activity is down from a year ago. However, builders
report stronger housing starts over recent months because of warmer
weather. Single-family construction continues to be stronger than
multi-family. New home sales are slow, and prices remain generally
stable. Respondents expect housing activity to remain slow for the
rest of the year. Most district savings and loan respondents report
deposit increases both over last month and over last year.
Respondents have mixed expectations about deposits in the near term.
Some expect outflows due to continuing problems in the industry,
while others expect inflows due to a return of customer confidence.
Mortgage demand is weak at most institutions, and is expected to
improve only seasonally. Mortgage rates remain steady and are
expected to be steady to down slightly over the rest of the year.
Banking
Commercial bank respondents report total loan demand was constant or
down over the last month. Home mortgages, commercial real estate
loans, and commercial and industrial loans were constant at most
banks; agricultural loans were down. In contrast, most banks report
higher demand for construction loans, and higher or constant demand
for home equity loans. Prime rates and consumer lending rates were
unchanged at nearly all banks, with no change expected in the near
term. Nonprice terms of lending have changed for some borrowers,
however. Some small businesses, and especially newer businesses and
start-ups, report facing slightly more stringent lending terms,
often in the form of higher collateral requirements.
Most banks report loan-deposit ratios unchanged or up from last month. Deposit activity was mixed at district banks. Levels of NOWs, MMDAs, IRAs, and Keoghs were constant at most banks, while demand deposits and large CDs were down at many banks.
Agriculture
The district's winter wheat crop is in good condition due to
plentiful rainfall and mild temperatures in recent weeks. Above
average wheat yields are expected in much of the district. Continued
rainfall and low soil temperatures threaten to delay planting of
spring crops in some states. Improved soil moisture conditions have
bolstered the outlook for the district's spring crops, however.
Credit standards at district agricultural banks are generally steady. Credit is readily available to creditworthy farm borrowers, with repayment capacity a key lending condition. Some bankers in areas affected by the past two years of drought, however, report a modest tightening of credit standards on farm loans. Where the drought was especially severe, some farm loans restructured during the mid-1980s have required additional attention. Across most of the district, however, bankers report no undue problems with previously restructured farm loans.
The performance of rural nonfarm businesses in the Tenth District varies widely. Most are stable, but some are growing moderately and others are declining slowly. Those rural nonfarm businesses dependent on agriculture have benefited from the improved performance of the farm economy.