August 7, 1996
Overview
The district economy continued to grow at a moderate pace
during the past month. Retail sales increased modestly,
manufacturing and construction activity remained strong, and
activity in the energy industry picked up. In the farm economy,
however, continued financial losses in the cattle industry held down
farm income, despite strong crop prices. Labor markets stayed tight
for both entry-level and skilled workers, although reports of rising
wages remained widely scattered. Overall retail prices were steady,
even though prices rose for some materials used in manufacturing and
construction.
Retail Sales
Retailers report sales improved modestly during the
past month and remained above last year's level. Sales of apparel
were strong, while sales of appliances and other electronic products
were weak. Retailers generally expect sales to remain strong the
next couple of months before slowing somewhat near the end of the
year. Although most retailers were satisfied with their current
inventory levels, some were trimming inventories. Automobile dealers
report increased sales last month that stayed well above last year's
level. Sales are expected to remain strong in the months ahead.
Dealers indicate automobile inventories were generally smaller than
desired, due to the transition to the new model year and to
continued strong demand for light trucks and sport utility vehicles.
While dealers report that high consumer debt has lowered the quality
of applications for automobile loans, they indicate that overall
credit quality appeared stable.
Manufacturing
Manufacturers continued to operate their plants at
high levels of capacity use, and some plants report an increase in
overtime work. None of the manufacturers, however, indicate capacity
constraints caused production bottlenecks. Manufacturing materials
were readily available with normal lead times, although some
manufacturers report temporary difficulty in obtaining steel.
Manufacturers were generally satisfied with their inventory levels,
although some were reducing inventories slightly.
Housing
Most builders report housing starts held steady last month
but at a much faster pace than last year's. Single-family homes
accounted for most of the construction activity, although
construction of multifamily units remained brisk. Builders expect
construction activity to remain strong through the end of the year.
Sales of new homes picked up slightly last month and remained well
above last year's pace, despite a relatively low inventory of unsold
homes. Prices of new homes held steady, staying somewhat higher than
last year's level. While building materials were readily available,
prices rose slightly, especially for lumber and roofing materials.
Most mortgage lenders expect mortgage demand to remain strong
through the end of the third quarter.
Banking
Banks generally report total loans grew somewhat faster
than deposits last month, slightly boosting loan-deposit ratios.
Most banks report gains in home mortgage and home equity loans. Home
construction loans, commercial real estate loans, and commercial and
industrial loans held steady, while consumer and agricultural loans
declined. Banks also report gains in demand deposits, NOW accounts,
and MMDAs. Security investments held steady while large CDs, small
time and savings deposits, and IRA and Keogh accounts declined.
All respondent banks held their prime lending rates steady last month, although a third of the banks expect to increase their prime rate in the near future. Half of the respondents raised their consumer lending rates slightly last month, and a few banks expect a further increase in the near future. Lending standards were unchanged.
Energy
Activity in the district energy industry picked up in June.
Prices of crude oil and natural gas stayed well above last year's
level. As a result, the number of drilling rigs operating in the
district rose 15 percent above last year's level.
Agriculture
The district's winter wheat harvest is nearly complete.
As expected, wheat yields ranged from normal to poor, due to the
unusually dry winter and spring in Oklahoma and Kansas. Recent
rains, however, have brightened prospects for the district's corn
and soybean crops, which are generally in good to excellent
condition. While recent improvements in crop growing conditions have
pushed crop prices down, prices remain much higher than a year ago.
Cattle feedlots and ranches continue to operate at a loss, due to high feed costs and weak cattle prices. Agricultural bankers report that district feedlots have cut production, with many operating at only half to three-fourths of capacity. In addition, ranchers have trimmed herds by selling older, less productive cows. Overall, little improvement is expected in district farm income this year, as continued financial losses in the cattle industry largely offset financial gains by crop producers.
Wages and Prices
Although supplies of both entry-level and skilled
workers remained tight in much of the district, reports of rising
wages were widely scattered. Retailers report a tight supply of
minimum-wage workers, and some retailers believe the recently
legislated increase in the minimum wage will eventually push up
retail costs. Manufacturers indicate that most kinds of workers were
in short supply, including welders, machinists, and clerical
workers. One manufacturer paid more overtime instead of raising
wages, and some manufacturers increased wages slightly. Prices rose
for some manufacturing materials, especially steel, some paper
materials, and some plastics. Prices generally held steady at the
retail level, with retailers expecting little change in prices in
the months ahead.