Consumers in the Tenth District are contributing to increasing economic activity, according to reports received from retail food chains, large department stores, automobile dealers, and banks. Sales of new domestic automobiles have been generally better so far in 1972 than in the latter months of 1971. However, soft goods seem to be moving better than consumers' durables other than automobiles, according to most department stores. Consumer credit at District banks continues to climb, both in the form of installment loans and the use of bank credit cards. District banks have also experienced stronger loan demand from local business borrowers in the last few weeks.

Response from retail sellers of nonfood items (primarily large department stores) across the District indicate that, with few exceptions, sales so far in 1972 are running well ahead of a year ago. There is apparently no general movement toward additional inventory building beyond what has already been budgeted for this year. On balance, soft goods seem to be moving better than consumers' durables. Most retailers interviewed expect 1972 to be a good year, although a major Kansas City department store anticipates little sales strength until fall.

Interviews with automobile dealers and distributors in Kansas City, Denver, Oklahoma City, and Omaha revealed that sales of new domestic automobiles were generally better so far in 1972 than in the closing months of 1971 (Omaha excepted). Inventory situation reports varied, depending on the make of car, but most dealers described their inventories as "normal" or "satisfactory". Some foreign car dealers indicated that their sales had been hurt by the New Economic Policy, especially in the latter months of 1971, but that their positions were improving this year.

A number of retail food chains were surveyed for current information on food sales and prices. Although the reports on sales were mixed, the information on prices formed a consistent pattern. On balance, food prices have not risen significantly since the lifting of the freeze, according to those firms contacted. Nevertheless, all reported a sharp increase in the retail price of meat some as high as 25 percent. In the last month, meat prices have shown greater stability, but only because retail gross profit margins have narrowed to unprofitably low levels. Efforts are being made to restore profit margins to more normal levels and, unless wholesale carcass prices fall sharply, retail meat prices may rise above current levels in the coming weeks.

These reports tend to support the behavioral patterns of food retailers observed in the past. Typically, retail food prices neither rise nor fall in direct proportion to price changes at the farm level; instead, changes in retail food prices tend to lag behind those at the farm level and are also subject to less variation. During the last two years, for example, the average price of choice slaughter steers rose about 10 percent, but the increase in the beef and veal component of the consumer price index was less than 5 percent. Similarly, average hog prices fell nearly 20 percent over the period, but the pork consumer price index dropped only 9.5 percent. Except for two brief interruptions, farm prices have climbed steadily since December 1970 and now average about 10 percent above a year ago. Sharply higher prices for meat animals have been responsible for most of the 7 percent gain since last November as well as the recent resurgence of the wholesale price index and consumer price index. Despite the prospects for some easing of beef and pork prices at the farm level in the weeks ahead, further increases in retail meat prices seem likely, given the aforementioned behavioral characteristics of food merchants.

Tenth District banks have experienced stronger loan demand from local business borrowers in the last few weeks, although activity in national accounts remains quite low. Construction and real estate loans for business expansion have picked up markedly in Albuquerque and Denver, while in other areas of the District, banks reported increased inquiries for these types of loans. There are some scattered signs of a prospective increase in loans to businesses for inventory purposes, although to date these have manifested themselves mainly as requests for larger credit lines and a more optimistic attitude noted in talks with business customers. Consumer credit continues to climb, with the maintenance of a steady rate of increase in installment loans and some acceleration in the use of bank credit cards.

One reason for the relatively poor showing of national accounts may be the attempt of some District banks to maintain their prime rates above the New York level. By decreased use of their credit lines and threats to move their accounts to other banks, national customers have forced District banks to 4 3/4 percent or 5 percent on loans made to national borrowers. The prime rate to local borrowers remains as high as 5 1/2 percent at some banks.

Deposit flows continue strong at District banks, as increases in savings and consumer time deposits have more than offset seasonal decreases in demand deposits. District banks have not lowered their consumer time deposit rates in the last few weeks (most are still at Regulation Q ceilings). Some banks have experienced a runoff in their negotiable certificates of deposit, but many are adjusting rates to be able to turn over their existing stock.