November 4, 1992
Overview
Economic growth in the Tenth District continues to improve modestly.
Retail sales are increasing, despite a slight drop in new car sales.
Housing starts and new home sales are up again as mortgage rates
remain low. Higher natural gas prices are boosting energy activity.
And bank loan demand is gathering strength in most categories. Farm
income is likely to be about unchanged from a year ago, however, as
strengthening livestock prices continue to offset weakening crop
prices.
Retail Sales
District retailers report continued improvement in sales over the
last month. Demand is especially strong for apparel. Prices overall
continue to be stable and are expected to remain steady for the next
few months. While respondents are satisfied with their current
inventories, most plan to increase inventories in expectation of
better Christmas sales.
Automobile sales over the last month were down slightly from last month, but most dealers expect sales to improve gradually. Financing is generally available for both dealer inventories and potential buyers. Dealers are expanding inventories of the new models, but by less than in recent years.
Manufacturing
Most purchasing agents report stable input prices over the past
month and expect no significant changes next month. Some firms whose
inputs come from the steel industry report slightly longer lead
times for obtaining materials. Most firms are trimming inventories
in response to seasonal factors or sluggish sales. Firms are
generally operating slightly below capacity.
Housing
Starts of single-family houses in the district are substantially
higher than both last year and last month, but multi-family starts
remain flat. Builders expect housing starts to remain strong over
the rest of the year. Sales of new homes are also strong and
inventories are low. Mortgage demand remains very strong due to low
mortgage rates, with much of the strength reflecting refinancing.
Mortgage demand is expected to moderate over the rest of the year,
as mortgage rates stabilize and seasonal factors take effect. New
home prices are up slightly, partly reflecting rising lumber prices.
Energy
Higher natural gas prices continue to boost the district's energy
industry. The average number of operating drilling rigs in district
states increased from 222 in August to 250 in September. Moreover,
the rig count continued to rise sharply in the first three weeks of
October to an average of 282 rigs, or 13 percent more than a year
earlier.
Banking
Loan demand strengthened last month, with half of the respondents
reporting increases in demand and half reporting no change. Most
categories of loan demand were stronger, although there were few
reports of changes in commercial real estate and agricultural loans.
Loan-deposit ratios showed no clear pattern, with about a third of
the respondents reporting decreases, a third reporting increases,
and a third reporting no change.
None of the respondents changed their prime rate in the last month, and only one expects any change in the near term. Half the respondents lowered consumer lending rates in the last month, and another one-fourth expect to lower them in the near term. Lending standards were unchanged.
Deposit behavior varied across the respondents. Half of the respondents reported increases in deposits while half reported either no change or decreases. Demand deposits, NOW accounts, and MMDAs were generally constant to up. Large CDs and small time and savings deposits were generally constant to down.
Agriculture
The fall harvest is in full swing across the district. Corn,
soybean, and milo yields are generally larger than normal, while
cotton and peanut yields are near normal.
Planting of winter wheat is nearly complete in the district, and the crop is generally in good condition. In Oklahoma, however, dry weather has slowed wheat planting and the development of winter wheat pastures. Rain is needed soon both to ensure an adequate forage supply for the winter months and to promote development of next year's wheat crop.
Recent gains in cattle and hog prices have bolstered the income outlook for district livestock producers. Relatively high feeder cattle prices are encouraging district ranchers to sell this year's calf crop to feedlots earlier than normal. Stronger hog prices and low feed prices have pushed up profits for district hog producers. Still, bankers see little expansion underway in district hog production.
Nonfarm business activity in many of the district's rural communities is picking up, although some communities continue to struggle. Overall, most rural bankers are optimistic about business conditions in their communities.