May 6, 1992
Overview
The Tenth District economy appears to be growing slowly. Retail
sales continue to improve, housing starts remain strong, and auto
sales continue to inch upward. Activity in the energy sector remains
depressed, however, and higher cattle prices have only slightly
brightened expectations for the farm sector. Most retailers are
adding to inventories, but some manufacturers are still cutting back
on stocks of materials and other inputs. Prices for retail goods and
manufacturers' inputs generally remain stable.
Retail Sales
Retail sales increased over the last month, and most retailers
expect continued improvement over the rest of the year. Prices are
the same or lower than a year ago. Retailers generally expect prices
to remain stable over the rest of the year. While most retailers are
satisfied with their current inventory levels, they plan to increase
inventory purchases in the coming months.
Auto sales increased slightly in most district states over the last month. Financing is generally available for inventories, and potential buyers are generally able to obtain loans. Most automobile dealers continue to expand inventories in anticipation of further increases in sales in the next few months.
Manufacturing
Most purchasing agents report virtually no change in input prices
over the past month, continuing the trend of relatively stable
prices over the past year. Prices are expected to rise slightly over
the next few months. Most firms are able to obtain materials without
difficulty, although some agents have noticed slightly longer lead
times, While some firms are expanding inventories, others are
trimming them.
Energy
Soft prices for oil and natural gas continue to depress energy
activity in the district. The average number of drilling rigs
operating in district states slipped from 198 in February to 194 in
March. The March rig count was nearly 25 percent below its level of
a year ago and very near the low levels reached during the energy
bust in 1986.
Housing
Housing starts across the district are much higher than a year ago.
Builders expect further increases during the second quarter before
starts reach a steady level. New home sales have jumped sharply from
a year ago, while inventories continue to drop. Mortgage demand is
strong and is expected to remain strong, although mortgage rates are
expected to stay relatively constant over the rest of the year.
While the price of lumber is sharply higher than a year ago, the
prices of other building materials have risen only slightly.
Builders expect lumber prices to continue climbing but foresee no
difficulty obtaining materials. Due partly to the lumber price
increases, new home prices are up sharply from a year ago.
Banking
Loan-deposit ratios at most reporting banks were down slightly or
the same as last month, with loan demand generally mixed. Most
bankers report greater demand for home mortgages and construction
loans, and greater or constant demand for consumer loans. Demand for
home equity loans at most banks was constant. Demand for commercial
and industrial loans was constant or down, while demand for
commercial real estate loans and agricultural loans at nearly all
banks was down. The level of investments at nearly all banks was up.
Deposits were up or constant at most banks over the last month. Demand deposits were mostly up, while NOW, super-NOW, and money market deposit accounts were mostly up or constant. At most banks, IRA and Keogh accounts and small time and savings deposits were constant. At nearly all banks large CDs were down.
Nearly half the banks expect to lower their prime rate in the near term. Several banks lowered consumer lending rates last month, and a few banks expect to lower rates in the near term. Most banks, however, report unchanged consumer lending rates with no change expected in the near term. A small number of banks report tightening their lending standards in the last month.
Agriculture
Winter wheat yields are expected to be normal in most of the
district, although the condition of the crop varies widely. In some
areas, the crop is in excellent condition following timely spring
rains. But in other areas, the crop is in poor condition after a
late spring cold snap. At the same time, wet field conditions have
slowed the planting of spring crops.
Cattle prices have rebounded to near record levels after falling sharply last year. Still, cattle feeders remain wary that sluggish consumer demand could trigger another drop in prices later this summer. Thus, many feedlots are operating below capacity and carefully avoiding a buildup of fed cattle inventories.
After steady gains in recent years, farmland prices this spring are generally unchanged from a year ago. In most of the district, last year's dip in farm incomes appears to have taken the steam out of the farmland market. But farm rents have edged up in isolated areas, suggesting some possible gains in farmland prices.