March 13, 1991
Overview
Growth in the Tenth District economy has slowed somewhat, due in
part to weaker performance in the agricultural and energy sectors.
District farmers are cautiously limiting their purchases after
making modest financial gains last year. And, drilling activity in
the district has slipped in recent weeks due to tumbling oil prices
and uncertainty about the future strength of OPEC. On the positive
side, manufacturers export sales are increasing modestly and retail
sales are flat to improving slightly.
Retail Sales
Retailers generally report flat to slightly improving sales. While
consumers are still steering clear of big ticket items, they are
buying more apparel. Retailers are keeping prices generally stable,
except for special promotions, to keep from discouraging customers
further. Most retailers are generally satisfied with their inventory
levels and are continuing to keep them low even though banking on
improved sales after the Persian Gulf War.
Auto sales are down in almost all parts of the district. Adequate dealer financing is available, but some potential buyers are having difficulty getting loans. Weak sales are frustrating dealer efforts to trim inventories. Respondents expect auto sales to remain flat over the next two to three months before gaining strength.
Manufacturing
Most purchasing agents report moderate increases in input prices,
with only scattered reports of larger price increases, in the near
term, agents expect prices to be relatively stable as inputs appear
to be readily available, Most firms continue to trim inventories.
Some firms report slightly higher export sales and expect further
increases during the rest of 1991 due to economic growth abroad and
the weaker dollar.
Energy
Oil prices have tumbled to pre-invasion levels due to abundant crude
oil supplies and the winding down of the Gulf War. Lower oil prices
and uncertainty about the future strength of OPEC have caused
district drilling activity to subside in recent weeks. The average
number of operating drilling rigs in district states fell from 295
in January to 263 in February. Still, the district rig count
remained about 3 percent above its year-ago level.
Housing Activity and Finance
Housing starts over most of the district were even with the previous
month. While starts are still below year-ago levels, most builders
expect an increase during the second half of the year. Construction
materials are readily available with few reports of price increases.
New home sales and prices are mixed, as is the outlook for new home
sales. Most district thrifts report continued deposit outflows.
Mortgage demand is weak, with some increase in refinancings due to
recent declines in mortgage rates. Respondents expect rates to
stabilize after falling slightly over the next few months.
Banking
Most commercial bankers report loan demand lower or unchanged
compared with last month. Demand for commercial and industrial
loans, commercial real estate loans, and construction loans was down
at several banks and unchanged at most others. In contrast, demand
for home mortgages and agricultural loans was constant or up at most
banks. Demand for consumer loans was generally steady. Loan-deposit
ratios were unchanged from last month at most banks.
Most reporting banks lowered prime interest rates last month, and nearly half of the reporting banks expect further declines in the near term. While consumer lending rates were unchanged at most banks, half of the banks expect to lower rates in the near term. Nearly all banks reported terms of lending unchanged from last month. Deposit behavior varied considerably during the past month, across both reporting banks and categories of deposits. About equal numbers of banks reported higher and lower demand deposits, while MMDAs were up at most banks. In contrast, large CDs were constant or down at most banks. Changes in other kinds of deposits varied widely.
Agriculture
Spring credit reviews show modest financial gains overall by
district farmers during the past year. The results of the reviews,
however, differed markedly for crop and livestock producers. For
crop producers, weak grain prices limited incomes. For livestock
producers, low feed prices and continued strength in cattle and hog
prices bolstered incomes. Although most banks have not changed their
credit standards since a year ago, some banks are examining loan
requests from grain producers more closely.
Capital expenditures by farmers in the district are down from a year ago. Many farmers have limited their spending to necessities and purchases of used rather than new equipment. Prospects of weak grain prices, higher production costs, and smaller government payments are probably responsible for reining in capital spending.
The condition of the winter wheat crop varies across the district. Cold, dry weather in recent months has left the crop in poor condition in parts of Oklahoma and Kansas but in good condition elsewhere. Normal yields are attainable in most of the district if sufficient rainfall is received during the remainder of the growing season.