Major retailers in the Tenth District report modest sales increases over last year and appear moderately optimistic about the rest of 1974. Sales of new domestic automobiles have grown more than seasonally in recent months, with some relative movement away from small cars. Lower livestock prices and prospects for a smaller wheat crop than was expected earlier may weaken the District farm income situation. However, little of the substantial decline in meat animal prices has shown up in retail meat prices. Although business loan demand at Tenth District banks remains strong, there are some indications that a slowdown in the growth of such loan demand may be under way.

The retail sales picture continues to be mixed, according to reports from department stores across the Tenth District. Different firms in the same metropolitan area report widely differing growth in sales, along with the usual divergence from city to city. One major retail firm reports that its sales in rural areas are very good but that the sales picture in the metropolitan areas is "not so rosy." While furniture sales are apparently weak, sales of other consumer durables-especially appliances-seem to be fairly strong. Much of the inventory growth reported is said to be almost wholly in dollar terms, with some firms reporting declines in unit terms. Several firms emphasized the high holding costs for inventories as an important influence on their policies. Attitudes of the various respondents toward future sales may be summed up as moderately optimistic.

Sales of new domestic automobiles seem to be showing slightly more than seasonal growth in recent months. Sales are shifting back to large- and intermediate-sized cars, compared to the December through February period. Buyers seem to be accepting standard engine sizes for a given model but continue to add options such as air conditioning and automatic transmission on all sizes of cars. There may be some movement away from such accessories as power windows and power seats. Reports on inventories vary so much from dealer to dealer that the situation is impossible to summarize.

Sales of imported cars in the Kansas City area have slipped substantially since February, with changing attitudes toward the fuel situation cited as the major reason. As a result, inventories are now very heavy. A Volkswagen dealer feels that the manufacturer simply guessed wrong on the duration of the gasoline shortage and the longer-run attitudes of car buyers, with inventories becoming "burdensome" as demand "fell apart."

Prices and weather continue to dominate the agricultural picture. The latest report on sliding farm prices, which have now fallen about 14 percent since February, offers more evidence that processors and food retailers are allowing profit margins to widen before adjusting their prices. Hog and cattle prices are down 30 percent and 12 percent, respectively, from a year ago, but the decline in red meat prices has been 3 percent or less. This reluctance to pass lower meat animal prices on to the consumer has slowed the movement of meat through the marketing chain and has contributed to an oversupply of heavy animals. Consequently, the livestock industry continues in a depressed financial state. However, on the basis of a recent telephone survey to a limited number of commercial bankers, most cattle loans have been adequately secured during the past year, thereby minimizing the number of bad loans. It was reported that a few rural banks may be in jeopardy because of poor cattle paper.

The District's wheat situation has not improved since the last Red Book. Various reports indicate that drought has destroyed much of the crop in New Mexico and Colorado. Given the recent planting difficulties in the spring wheat regions, 1974 wheat production may fall short of official estimates. However, the crop is still expected to surpass last year's record of 1.7 billion bushels.

The volume of business loans declined substantially during May at weekly reporting banks, thereby providing some indication that business loan demand has perhaps begun to slow. Furthermore, in a survey of large District banks, several reported signs of a cooling in loan demand, as indicated by a reduction in the volume of new loan requests. However, other banks in the survey, in spite of experiencing a decline in business loans in May, still felt that business loan demand was exceptionally strong and was showing no signs of abatement. Whatever the future direction of loan demand might be, it. was the consensus among the surveyed banks that current loan demand was quite strong. As a result, virtually all banks were more actively policing compensating balance requirements and repayment schedules.

District banks also experienced sizable inflows of CD's during May. In spite of press reports indicating that medium-sized banks might experience difficulty in attracting CD's in the wake of the problems at Franklin National Bank, apparently that was not the case with larger District banks. None of the surveyed banks reported having any difficulties in attracting and rolling over maturing CD's or having to pay a premium rate on CD's.