September 23, 1992
Overview
Economic growth in the Tenth District appears to have improved
slightly over recent weeks. Retail sales, including new car sales,
increased slightly. Both new home sales and housing starts
strengthened in response to falling mortgage rates. Some
manufacturers continued to benefit from export sales. Energy
activity improved modestly, but prospects for farm incomes remained
dim. Retail prices stayed generally stable, while prices for
manufacturers' inputs increased slightly.
Retail Sales
Most retailers report a slight improvement in sales over the past
month, with notably strong sales of apparel and most soft goods. In
the coming months, however, sales are expected to improve only
marginally. Stable to lower retail prices have put downward pressure
on profit margins. Most retailers intend to hold prices relatively
constant through the reminder of the year. Retailers are satisfied
with current inventory levels, but most retailers plan a seasonal
expansion before the holiday season.
Automobiles sales over the last month were steady to rising, and most dealers are optimistic about future sales. Financing is generally available for both dealer inventories and potential buyers. As the new model year opens, dealers are trimming inventories.
Manufacturing
Most purchasing agents report higher input prices over the past
month and expect prices to rise slightly next month, Nevertheless,
materials are readily available and lead times remain constant.
While some firms are expanding inventories, others are trimming.
Firms are generally operating below capacity with no bottlenecks.
Exports are rising as firms become more aggressive in marketing
their products to foreigners and as the dollar weakens.
Energy
Energy activity in the district appears to be improving modestly.
The average number of operating drilling rigs in district states
increased from 217 in July to 222 in August, leaving the rig count
only 6 percent below its year-ago level. Chiefly responsible for the
recent improvement in drilling are higher natural gas prices and tax
incentives, which are scheduled to expire at the end of the year.
Housing
Housing starts remain significantly higher than a year ago and have
been strong over the last month. Builders expect starts to remain
strong for the rest of the year and into next year. New home sales
also remain significantly higher than a year ago, causing a low
inventory of unsold homes. Mortgage demand is strong in response to
lower interest rates, with much of the strength due to refinancing.
Respondents expect mortgage demand to level off over the rest of the
year as mortgage rates stabilize. Sheetrock and concrete prices have
increased in the last month, and builders expect the price of lumber
to rise as wood is diverted to hurricane-stricken areas. The
increases in building material prices and continued strong housing
demand have contributed to rising home prices in the district.
Banking
Loan demand shoved no clear pattern last month, with roughly equal
proportions of respondents reporting declines, increases, and no
change in demand. Most categories of loan demand were also mixed,
although demand was stronger for home mortgages, home equity loans,
and residential construction loans than for other categories. Loan-
deposit ratios moved about in line with loan demand.
None of the respondents reported changing their prime rate in the last month, and only a few expect to lower the rate in the near term. Most respondents lowered consumer loan rates, however, and more decreases are expected. Lending standards were unchanged.
Deposits were up last month at most respondent banks. Demand deposits and NOW accounts showed gains at most banks, while most banks reported little or no change in other categories of deposits.
Agriculture
A relatively lackluster year is expected for district farm income
overall. Unexpected strength in cattle prices has offset the sharp
decline in crop prices since the beginning of the year.
Consequently, farm income is likely to be about unchanged from a
year ago.
District cattle feeders have held down inventories, providing support for cattle prices despite a surge in supplies of pork and poultry. Meanwhile, district cattle ranchers continue to enjoy excellent pasture conditions due to the district's abundant rainfall.
The abundant rainfall in recent weeks has also been generally beneficial for district crops. In Kansas and Missouri, above-average yields of corn, silo, and soybeans are likely. But in parts of Oklahoma and Nebraska, heavy rains and hail have damaged crops. Adequate soil moisture will encourage timely planting and development of winter wheat in the district.
The repayment rate of many farm operating loans hinges on when wheat farmers sell this year's crop. Some farmers sold their wheat shortly after harvest and used the sale proceeds to reduce loan balances. But a recent uptick in wheat prices--after a long decline since the beginning of the year--has encouraged many wheat growers to delay selling their grain in anticipation of further price gains. As a result, the pace of loan repayment has slowed.