January 18, 1995
Overview
The pace of economic expansion in the Tenth District remains strong.
Holiday retail sales increased from a year earlier and manufacturers
continue to operate at high levels of capacity. Construction of
multifamily residential buildings has offset slower single-family
homebuilding. Agricultural bankers report improvement in the
condition of their crop loans but a deterioration in the condition
of their livestock loans. Tightness in markets for skilled labor has
eased, and there is little evidence of upward pressure on wages.
Retail prices have remained stable, while materials prices have
increased in both the manufacturing and construction sectors.
Retail Sales
District retailers report that sales improved throughout the month
of December and were well ahead of year-ago sales. Despite
disappointing sales of outerwear due to unseasonably warm weather,
sales of basic lines were strong during the holiday season.
Retailers indicate they are satisfied with current inventory levels.
Most auto dealers report slightly declining sales over the past
month, due primarily to seasonal factors, but expect sales to be
strong over the next few months.
Manufacturing
Most firms continue to operate at high levels of capacity. Shortages
of skilled labor, however, are much less widespread than at the time
of our last Beigebook survey. Manufacturing lead times have
increased but are expected to shorten in the second half of 1995.
Most respondents plan to trim inventories in the near term.
Energy
Drilling activity in the district fell slightly in December. As a
result, the average number of drilling rigs operating in district
states stood somewhat below the year-ago level. Despite lackluster
performance overall in the region's energy industry, parts of the
district benefited from some firming in natural gas prices near the
end of the year.
Housing
Builders report a slight increase in housing starts from both last
month and a year ago due to a pickup in construction of multifamily
buildings. Most respondents expect building activity to remain
stable in the coming months. Sales of new homes increased slightly
in some parts of the district over the past month, despite higher
home prices. Most builders report materials are available with few
delays. Mortgage demand continues to decline with higher interest
rates, although most lenders expect demand to level off or increase
slightly in the months ahead.
Banking
Loan demand rose last month at most reporting banks. Most banks
report higher demand for commercial and industrial loans and for
consumer loans. Demand was largely unchanged for home mortgage loans
and home equity loans, flat to down for residential construction
loans, and up somewhat for commercial real estate loans. Demand for
agricultural loans was mixed. Loan-deposit ratios were constant to
up from the previous month, while security investments were
unchanged.
Most respondents raised their prime rate last month, and almost all expect to raise the rate again in the near term. Consumer lending rates were increased last month, and almost all banks anticipate further increases in the near future. Lending standards were unchanged.
Bank deposits increased slightly last month. NOW accounts, money market deposit accounts, and large time deposits were up somewhat, while demand deposits and small time deposits were little changed.
Agriculture
Agricultural banks in the district indicate their farm loan
portfolios had a mixed performance in 1994. Most crop loans are in
better condition than a year ago. Crop yields were up significantly
from 1993, more than offsetting lower prices. Nearly all bankers
surveyed report weaker livestock loan portfolios, however, due to a
slump in hog and cattle prices. Nevertheless, most bankers have been
surprised that livestock loans did not fare as poorly as large
summer losses had suggested.
The district's winter wheat crop is in good condition, although bankers in some areas are concerned that the 1994-95 winter may be too warm and dry to support a good wheat stand in the spring. District bankers generally expect farm income to improve slightly in 1995. With normal crop yields in 1995, incomes for crop farmers may be nearly equal to those of 1994. Incomes for livestock producers should improve in 1995 as input prices fall and livestock prices return to breakeven levels.
Prices and Wages
Retailers report that prices remained stable in December.
Manufacturers' purchasing agents report input prices increased in
the past month and are higher than a year ago. Fewer agents report
tightness in markets for skilled labor than in past months, and none
report upward pressure on wages. New home prices rose over the last
month. Most builders report that prices of materials have increased,
although tightness in the market for construction labor has eased.