March 18, 1992
Overview
The Tenth District economy continues to grow slowly, despite some
weakening in the farm and energy sectors. Housing starts are still
increasing, new car sales are picking up, and retail sales continue
to improve. Retailers are satisfied with their inventory levels, but
manufacturers continue to trim inventories of materials and other
inputs. Prices for retail goods and manufacturers' inputs generally
remain steady.
Retail Sales
Retail sales improved slightly over the last month, with demand for
housewares especially strong. Most retailers expect sales to climb
steadily over the rest of the year. Prices are expected to remain
steady, or perhaps inch up, over the next few months. Most retailers
are satisfied with current inventory levels and expect little change
in the coming months.
Auto sales in most district states were up slightly over the past month. Most dealers expect further increases in sales during the next few months, although some potential buyers are facing difficulty obtaining loans. With a brighter outlook for auto sales, most dealers are expanding inventories slightly.
Manufacturing
Purchasing agents generally reported only small price increases for
their inputs over the past year, and virtually no increases over the
past month. Prices are expected to remain stable during coming
months. Materials are readily available and agents expect no
problems in acquiring materials for the remainder of the year. Most
firms expect to keep trim inventories until they see signs of
economic improvement. Export sales have risen and further gains are
expected.
Energy
Slumping oil and natural gas prices have dampened already weak
energy activity in the district. The average number of operating
drilling rigs in district states slipped from 200 in January to 198
in February. While the monthly decline was modest, the February rig
count was nearly 25 percent below its year-ago level.
Housing Activity and Finance
Housing starts across the district are much higher than a year ago,
continuing the improvement observed last month. Builders expect
further increases in the rest of the first quarter and in the year
as a whole. New homes sales are up from a year ago, and inventories
are dropping. While the price of lumber has risen sharply, the
prices of other building materials have risen only slightly. There
is little difficulty in obtaining materials, but builders in some
areas anticipate shortages of lumber.
Most district savings and loan respondents reported net deposit outflows last month. Mortgage demand is very strong, largely due to refinancing. Demand is expected to remain strong, even though mortgage rates have risen recently. Respondents expect little change in rates in the near term and over the rest of the year.
Banking
Loan-deposit ratios at most reporting banks were lower or the same
as last month, as bankers reported generally constant loan demand.
Nearly all bankers reported greater demand for home mortgages, and
greater or constant demand for consumer loans and agricultural
loans. Demand for construction loans and commercial and industrial
loans was constant or down at most banks, while commercial real
estate loan demand was mostly down.
Deposit behavior across reporting banks was mixed. NOW, super-NOW, and money market deposit accounts were mostly up, while demand deposits were mostly down. Large CDs at nearly all banks were down.
Most reporting banks lowered consumer lending rates during the last month, and a few bankers expect further declines in the near term. Prime rates, however, were unchanged at nearly all reporting banks, with no change expected. Lending standards at all reporting banks were unchanged from last month. Bankers generally said the recent lowering of reserve requirements on transaction deposits would have little or no effect on their financial condition or on their lending.
Agriculture
Credit reviews at district agricultural banks reflect the recent
downturn in district farm incomes. Farm lenders note a slight rise
in the number of problem loans and a slight drop in repayment rates.
Last year's plunge in livestock prices hurt livestock producers, and
drought in some parts of the district hurt crop producers. Financial
reserves built up in recent years cushioned the recent drop in
livestock profits, however. And higher grain prices brighten
prospects for district grain producers in the year ahead.
Recent rainfall has eased the drought that threatened the district's winter wheat crop, although the crop remains vulnerable to a sudden cold snap. With average temperatures and timely rainfall during the remainder of the growing season, normal to above normal yields are attainable in most of the district.
Despite the sluggishness in the national economy, mainstreet businesses in the district's rural communities have performed well in recent years. The recent drop in farm income, however, has dampened business activity in many rural communities and trimmed profits for some rural businesses.