April 6, 1971
Economic activity in small rural communities in the eleventh district is not likely to improve much this year—in the opinion of bankers at banks with less than $10 million in deposits. Loan demand generally has remained weak in the areas served by these banks even though the banks have ample lendable funds and have reduced their lending rates in recent weeks. The drought conditions in the Southwest have contributed to the continued sluggish economic activity in such rural areas. But economic conditions in the entire district also have shown no real improvement recently.
Most of the bankers surveyed expected economic conditions in their areas this year to remain unchanged from the subdued pace of last year. Of those that did expect some change, the number anticipating a deterioration was slightly larger than the number expecting an improvement. Drought conditions were cited as a major depressant by those anticipating a further decline in economic activity.
The slow economic pace in these areas is reflected in the overall weakness in loan demands at these banks. Most of the respondents reported that, generally, loan demands have remained essentially unchanged since the end of the year. There has been some .pickup in the demand for mortgage credit, and to a lesser extent for consumer credit. However, these increases have been offset, at least in part, by a weakening in the demand for business loans.
The relatively small demand for loans occurred in spite of a substantial supply of lendable funds at these banks, a greater willingness to make loans, and recent reductions in lending rates. Most respondents indicated that inflows of funds were far in excess of that necessary to meet prevailing loan demand. In every reported loan category (business, consumer, mortgage, and agricultural), the number of bankers indicating a greater willingness to make such loans far outnumber those less willing to make these loans. Currently, the prime rate at the banks ranges from 5-1/4 to 10 percent, with an average of about 7-1/2 percent. Most indicated that about 10 percent of their loan portfolio was lent at the prime rate and another 25 percent was lent at rates tied to prime.
Most of the respondents do not expect the demand for loans to pick up significantly this year. However, about 30 percent do expect some increase, particularly in the demand for real estate, consumer, and agricultural loans. Virtually none of the bankers expect to reduce their prime rate in the near future.
For the district as a whole, there has been little improvement in economic conditions in recent weeks. Registrations of new automobiles have picked up somewhat, and department store sales show some improvement. Total nonagricultural employment rose slightly in the district states, but manufacturing employment continued its decline. The seasonally adjusted Texas Industrial Production Index for February remained essentially unchanged from that in January. And oil allowables announced for April were unchanged from March. The district petroleum industry is believed to be producing close to capacity at these rates. Dry weather conditions remain the principal concern for agricultural operations over most areas of the district. Except for the extreme eastern part of the district, the condition of pastures and ranges as well as cattle has fallen below the ten-year average.