January 19, 1994
Overview
The Tenth District economy is still growing moderately. Housing
activity and retail sales are both increasing and loan demand at
commercial banks is generally rising. Farm income is flat, however,
and activity in the energy sector is slowing. Prices for both retail
goods and manufacturers' inputs are holding fairly steady.
Retail Sales
Most district retailers report sales are moderately higher than a
year ago, as Christmas buying generally met or exceeded
expectations. Merchandise categories with especially strong sales
included home furnishings and appliances, apparel, and jewelry.
Sales are expected to continue to rise at a moderate pace. Most
retailers, satisfied with current inventory levels, expect to
maintain stocks in line with sales after normal post-holiday
adjustments. Retail prices remain generally flat and little change
is expected in the months ahead as competition keeps prices in
check.
Reports on last month's automobile sales are mixed, but dealers are generally optimistic about 1994 sales. Some dealers are still expanding new car inventories, while others are satisfied with current stocks.
Manufacturing
Purchasing agents report a mixture of changes in input prices, with
some prices rising modestly and others falling slightly. Few expect
prices to rise in the near term. Most agents find materials readily
available and expect few availability problems in the months ahead,
although some lead times have lengthened slightly. A few firms
continue to trim inventories, but most are satisfied with their
inventory levels. Most respondents who sell abroad report somewhat
higher export sales.
Energy
Activity in the district energy sector slowed recently as oil prices
continued to fall, The price of West Texas intermediate crude fell
in December to its lowest level in nearly five years. Overall, the
average number of operating rigs in district states slipped to 292
in November from 294 in October. The rig count continued to fall in
the first four weeks of December to 283, off about 14 percent from
one year ago.
Housing
Housing starts and sales of new homes in most areas of the district
remain significantly higher than a year ago. Most builders also
report increases in the last month but note slower growth, which
they attribute partly to increased lumber prices and a lack of
skilled labor. In the period ahead they expect further increases in
starts and sales of new houses along with higher prices for new
homes. Inventories of unsold homes remain very low. Mortgage demand
is reported to be mixed, with most respondents expecting seasonal
factors to be most important in the near term. While respondents
generally report modest increases in mortgage rates, there is no
consensus on how rates will behave in the near future.
Banking
Loan demand was higher last month at almost all reporting banks.
Most respondents report increased demand for consumer, residential
construction, agricultural, and commercial and industrial loans, and
for home mortgages. Demand was generally constant to higher for home
equity and commercial real estate loans. Loan-deposit ratios
increased at more than half the banks and remained unchanged at the
rest. Investments were mostly unchanged from the previous month.
No respondents changed their prime rate last month and none expect to do so in the near term. A few banks trimmed their consumer lending rates, but most left them unchanged. One bank eased its lending standards while the rest reported no change.
Deposits increased last month at most reporting banks and were unchanged at the others. Demand deposits and NOW accounts were up at almost all banks. Money market deposit accounts and small time and savings deposits were constant to up at most banks. Large CDs were mixed, with about half of the respondents reporting increases and half reporting decreases.
Agriculture
District agricultural bankers view farm prospects for 1994 as mixed.
Higher crop prices will bolster incomes for district crop producers.
But the higher crop prices will push up feed costs and squeeze
profit margins for district livestock producers. Overall, the
bankers expect little change in district farm income in the year
ahead.
Most district farmers and ranchers enter 1994 in solid financial condition, according to district agricultural bankers. Despite large crop losses caused by last year's wet weather and flooding in the eastern part of the district, the bankers note only slight slippage in the quality of their farm loan portfolios. The bankers plan to deny credit to very few of their current farm borrowers in 1994.
Despite the outlook for flat farm income, most small business owners in district rural communities are optimistic about their prospects in the coming year. Sales during the recent holiday season were generally above normal. As a result, many rural businesses enjoyed improved sales in 1993, and they expect stronger sales in 1994.