Vigorous economic activity in the District is being bolstered by strength in the agricultural and construction sectors and in automobile sales. Overall activity is being supported by strong demands in all major loan categories at commercial banks. At the same time, growth in savings inflows and in mortgage loans and commitments is sustaining a high level of residential construction. Recent developments surrounding the export of farm products are also contributing to an improved income situation in the important agricultural sector of the District's economy.

Loan demand continues strong at District banks, with heavy demands being experienced in all major loan categories. Most District banks surveyed increased their prime rate to 5 3/4 percent during the first week of October reflecting both heavy business loan demand and national financial developments. The recent run-up of short-term interest rates, which has increased the cost of short-term funds, has also put upward pressure on the prime rate at District Banks. Despite the upward adjustment of offering rates on CD's, the volume of CD's has declined substantially at District banks since the end of August.

Several District bankers expressed concern about the possibility of disintermediation, even though present inflows of time and savings deposits have been strong. Rates on consumer-type time deposits are generally at ceiling levels. No consensus has developed regarding market rate levels that will trigger deposit outflows, but many bankers feel that both consumer-type time deposits and large CD's will be affected if present trends continue. In anticipation of this prospect, several banks are actively attempting to extend deposit maturities.

Savings inflows to District savings and loan institutions were reported to be down a bit from last year by respondents in Kansas City and Oklahoma City, but from "surprisingly steady" to "coming in strong" by institutions in Wichita, Topeka, Omaha, and Denver. On the whole, rates offered for savings remain the same, but average effective rates paid have risen as increasing numbers of depositors have been switching from passbook to certificate accounts.

Mortgage commitments and loans of savings and loan institutions have apparently stabilized somewhat, with slight declines noted in some areas. However, respondents from Omaha and Oklahoma City emphasized that the small declines left loan activity very strong because of the phenomenal pace of lending earlier. Much the same thing was said about construction activity—continued strength in building in most areas, though somewhat reduced from earlier peaks. Some further slowing down was anticipated in residential building in the Kansas City Area and in apartment starts in Omaha. Respondents from Omaha and Denver were a little apprehensive about possible overbuilding.

The dollar value of residential construction contract awards so far in 1972 continues to be well above the 1971 level for the District and for most of its larger cities. Speculative building of single family dwellings continues strong in the Kansas City Area, according to home construction firms surveyed. Most contractors are not concerned with overbuilding at this point, although several mentioned "hearsay" comments that demand is slowing. Nearly all of the homebuilders were of the opinion that there were plenty of funds available to both builders and buyers.

Contract awards for nonresidential building and for public works and utilities have also shown increased strength across the District this year, except for Western Missouri. General contractors in the Kansas City Area are expecting an improvement in 1972, however, partly due to an expected increase in highway construction activity in both Kansas and Missouri.

Sales of domestic automobiles by District dealers are very strong. Introductory sales of new models are reported to be better than last year, almost without exception. "Hold-the-line" pricing on 1973 models is given some of the credit, because many customers believe that higher prices are just a matter of time. Many dealers, however, are convinced that price increases will not retard sales increases very much. Nearly all dealers expect 1973 model-year sales to be outstanding. At the same time, clean-up sales of 1972 models have gone exceptionally well, and inventories of 1972 cars are very low. Sales of imported autos are not sharing the buoyancy in domestic car sales, although later introduction of new models is undoubtedly a factor.

Net farm income for the United States for 1972 is now expected to reach $18.6 billion, or $500 million more than reported earlier, according to the U. S. Department of Agriculture. The change is due primarily to the huge grain sales to the Soviet Union, amounting to roughly $1 billion. The projections for wheat and feed grain exports have also been revised sharply upward for the 1972-1973 marketing year. District states produce approximately 40 percent of the wheat and 20 percent of the feed grains that are exported from the United States each year. Thus, these new developments in the farm income picture should boost the final figures for 1972 District farm income, although many farmers forfeited higher incomes by selling their wheat before the sharp price jump in August and September. However, historical records in Kansas indicate that, even after allowing for heavier than usual marketings in June and July, probably 50-60 percent of the new crop was still under farmer control when the full magnitude of wheat sales to Russia became apparent.