June 23, 1971
According to a survey of bank directors and other area businessmen, economic activity in the Tenth District is continuing to proceed at a moderate pace. Consumer spending remains steady, while construction activity continues to be quite buoyant. The employment situation is still rather soft, and no marked improvement is expected during the summer months. Farm income in the district is expected to improve somewhat over the months ahead due to a firming of farm prices and a larger volume of farm marketings. However, the prospect of firm prices at the farm level, together with anticipated increases in marketing and processing costs in the food industry, suggest that food prices will increase in the period ahead. With respect to prices in general, most respondents expressed concern over the continuation of strong inflationary expectations and felt that the current upward movement in prices would not be moderated significantly throughout the year.
Retail sales in the district are generally advancing at about last year's pace or slightly better. A variable pattern exists within the district, with retail sales showing good growth in Denver, while the rate of increase of sales in Omaha, Oklahoma City, and Kansas City is reported to be not much different from a year ago.
Residential and nonresidential construction activity is still generally vigorous throughout the district. Building activity remains quite strong in Denver, Tulsa, and Oklahoma City, but heavy construction has slowed somewhat in Omaha. In Kansas City, home builders expressed concern that the recent rise in interest rates might act as a depressant to future building activity.
The employment picture is still less than satisfactory as many reports indicate a large shortage of summer jobs. However, wage demands of organized labor remain high. In Denver, operating engineers and teamsters settled with the concrete mix firms for an 18 percent wage increase during the first year of their contract and a 38 percent increase over the next three years.
District cash receipts from farm marketings in the first quarter of 1971 were up slightly over the same period of last year. Crop receipts accounted for all of the gain, as livestock receipts fell somewhat below year-earlier levels. During the remainder of this year, livestock receipts in the district are expected to rise moderately above year-ago levels due to the likelihood of a larger volume of fed cattle marketings, and to stronger prices resulting from increased consumer demand for beef and a cutback in U. S. pork production. Crop receipts for the rest of the year also may show improvement over year-ago levels. The recent decision by the President to rescind shipping restrictions on grain exports to Communist Bloc countries is expected to lend support to grain prices. However, feed grain prices may fluctuate widely until fall in view of the uncertainty about the impact of the corn blight disease.
The net result of these anticipated changes in livestock and crop prices suggests that the index of prices received by farmers will likely remain firm in the months ahead. If this analysis is correct, further rises in food prices are indicated, as higher marketing and processing costs in the food industry seem certain. Hopefully, food prices will not rise as much as the 5 percent increase posted last year.
Loans at district banks continue to grow at the moderate pace of recent months. Construction and consumer loan demand remain strong, while business loan demand was most often described as "steady" or "up slightly." The recent move toward a higher prime rate by some banks in the nation was not unexpected by district bankers, most of whom thought that interest rates would continue to climb somewhat in the months ahead, with the prime rate being about 6 percent at year end.
Deposit inflows remain strong at district banks, particularly in the category of consumer time and savings accounts. Only a slight rise was reported in the larger denomination time and savings accounts, as banks appear to be adjusting the rates they pay on these deposits only enough to prevent outflows and not to attract new funds.