May 5, 1971
The unanimous feeling among directors of this Bank is that retail sales in this District have improved over the last month, and retailers in general are more optimistic in their expectations regarding future sales. Contrary to expectations, credit collection problems among District bankers and retailers are not any worse than they were a year ago, but wholesalers, especially in the construction industry, are noticing some instances of slower debt repayments by contractors. Loan demand continues to be quite strong throughout the District, and the general feeling is that it will intensify. Commercial banks are not competing aggressively for longer term CD's.
Without exception, the directors of this Bank report that retail sales in their areas are above year-ago levels. A number of explanations for this fact were given, including such things as the late Easter this year, seasonable weather throughout the District, and even that last year was so bad that things had to get better. Underlying all their comments, however, was an optimism not expressed earlier this year. As one director said, "Retailers are more optimistic now than they have been for some time, and now they are not whistling in the dark."
There are, however, scattered indications that consumers are still hesitant about committing themselves to major purchases. One director stated that sales of used autos and machinery were very strong while sales of new autos and machinery were very weak. In addition, two others said that new auto sales were weak in their areas.
Contrary to the expectation that the incidence of bad debts would rise following a prolonged period of contraction, debt repayment problems in this District are no more prevalent than they were a year ago. A number of directors even stated that collections and debt repayments had accelerated in their areas, primarily because consumers, in their uncertainty, are trying to clean up old bills instead of buying new merchandise. In addition, consumers in the copper-producing areas of the District, who are anticipating strikes this summer, are trying to minimize their fixed obligations for this period.
Loan demand, both throughout the District and in most kinds of loans, is relatively strong, and the general feeling is that it will strengthen over the coming few months. One director, who is also the president of a reserve city bank, stated that business loan demand is still very healthy and, contrary to his earlier feeling that loans at his bank will drop, he now expects them to continue rising. Consumer loan demand has also picked up along with the rise in retail sales, and mortgage loan demand is described as being brisk throughout the District. According to our latest agricultural credit conditions survey, the demand for agricultural loans is rising more than seasonally for several reasons, among which are the poor agricultural income situation, increased intended acreage this year, and a shift into higher cost crops such as corn this year.
Time deposit growth at District member banks is continuing very strong and has been running at a 20 percent seasonally adjusted annual rate since the turn of the year. The recent growth in total time deposits has been evident throughout the District and reflects the exceptionally heavy inflow of consumer-type time and savings deposits. Large CD's, at least those at reserve city banks, have remained essentially flat since the latter part of 1970.
Most District banks are no longer offering 5 3/4 percent on longer term CD's, and those banks that will still accept them are not advertising or actively pursuing them. For the most part, passbook savings rates have not changed over the past month, although one director was aware of a bank that had dropped its passbook rate to 4 percent.