Beige Book Report: Dallas
September 9, 1970
Data for this report were gathered by telephone interviews with branch board directors in' early September. On balance, the directors appeared to be cautiously optimistic. They noted that the slowdown never got too severe and there are now some signs of a modest pickup in business. Inflation is still strong in the view of most directors. The bankers reported a continuation of heavy loan demand, but also improved liquidity positions at their banks during the last three months. A few bankers expect the prime rate to be cut before the end of the year, an expectation based on noneconomic reasons. Construction may have picked up slightly in very recent weeks.
Business conditions are generally regarded as somewhat stronger now than three months ago. Several of the bankers noted that business never got particularly bad and that conditions now appear to have leveled out or picked up in the last three months. Several of the nonbank directors noted that their firms' orders had picked up recently, and they looked for some expansion in orders for the rest of the year.
While a few directors see price pressures easing, most list the
continuation of inflation as a major concern. Those who do see some
signs of abatement in price inflation refer particularly to selected
goods prices, while appearing discouraged about services prices. The
nonbankers reported that prices of inputs were not rising quite as
fast in the most recent weeks as earlier this year, except perhaps
for machinery parts. Product price declines were reported by two
directors, one due to a local market milk-price war and the other to
generally slack demand for paper and paper products over the past
six to nine months. All directors expressed concern over the price
of labor. One voiced a fear that the minimum wage would be raised
and possibly tied to the CPI,
a move, if adopted, that he considered
certain to add to cost pressures in the months ahead. A number of
directors cited the auto negotiations as crucial in either setting a
pattern of moderate wage increases or excessive wage increases.
There was some feeling that the outlook for inflation would improve
if the auto settlement was moderate (below 8 percent in first-year
wages).
The bankers were almost unanimous in reporting that liquidity positions at their banks had improved in comparison with three months ago. The only banker reporting a worsening in his liquidity position cited seasonal factors as the cause and expected improvement in October. The bankers were split about evenly on whether liquidity was still a serious problem for firms in their area. The nonbankers, however, indicated that they did not feel liquidity was a problem for firms in their industry. On balance, it appears that liquidity is of much less concern now than a couple of months ago.
Loan demand is reported strong by most bankers. Over half reported that loan demand was greater now than three months ago, while many who judged their loan demand to be weaker or the same as three months ago still characterized that demand as strong. Real estate loans were reported especially strong in several areas, and one banker noted heavy demand for feedlot and cattle loans. Banks in Corpus Christi, Texas, face heavy loan demand from individuals and businesses desiring to repair damage from Hurricane Celia.
Most bankers reported that the recent reserve requirement changes would ease their bank's position only slightly, with the move viewed as being more psychological than substantive. There were indications that the ease in reserve positions would improve liquidity but would not lead, at least directly, to additional loan commitments. One large Houston bank reports that it is considering abandoning the sale of commercial paper as a result of the reserve requirement changes. This bank would expect to concentrate more effort on increasing its volume of large CD's outstanding.
Economic conditions do not currently justify a further cut in the prime rate, according to District directors. Several expect a cut, however, before the end of the year because of political and public relations considerations. Two bankers indicated that they had not yet lowered their prime rate from 8 1/2 percent and might maintain that rate even if most banks make another cut in the next few months.
Signs of a pickup in construction activity in recent months were noted by some bankers, but no strong rebound is reported. One banker commented that many construction companies were forced out of business during the last 18 months so that it may take some time for resources to move back into the industry. The few areas where construction strength was cited were FHA-235 housing, university and local government construction, and gas drilling.