Department store sales in the Eleventh District, which have been strong throughout most of this year, have slowed since early September. Retailers report that there may be some slowing in purchases made to avoid anticipated price increases. But the fact that the slowdown in buying has been confined to big-ticket items, particularly television sets, furniture, and appliances, suggests that the drop in sales of new homes is also an important factor. By contrast, demand for apparel, recreational equipment, and automobile parts remains brisk, generally running ahead of last year's pace.

Approximately half of the stores contacted said inventories are currently above desired levels. Retailers have been able to obtain additional financing needed to carry these inventories, but the cost has been very high. Consequently, efforts are being made to move the merchandise quickly, including increases in promotional activity and price cutting. In most cases, the build-up of inventories is attributed to slower sales, but some retailers believe the increase is due in part to overshipments by suppliers in an effort to avoid high storage costs. For one large retailer in the Dallas-Fort Worth area, this resulted in pre-Christmas inventories reaching their peak three weeks earlier than last year.

Despite the recent weakness in sales, most of the department store executives surveyed are optimistic about the Christmas season. For example, the largest department store chain in the District expects the dollar volume of sales to be 10-15 percent higher than last year. That is expected to more than offset higher prices and to reflect, of course, some increase in unit sales. Expectations of strong Christmas sales assume that the current slowdown is due more to voluntary consumer restraint than to a constriction in consumer ability to purchase. Optimistic retailers cite a low rate of delinquencies on customer charge accounts, in some cases below the level of a year ago, as evidence that the buying power of most customers is still strong. Another sign is that customers are showing a preference for higher-quality items in most product lines.

New car dealers in the District report that the 1975 models are "just not moving." Most agree that the main factor causing sluggish sales is sharply higher sticker prices. The number of new cars sold is down substantially from this time a year ago—approximately 30 percent at the typical large dealers contacted. But retail demand is probably even weaker than this, since many of the units sold recently have been to fleet buyers. Thus, dealers are fearful that once fleet orders are filled, sales will fall even more sharply. Faced with lagging sales and the high cost of carrying inventories, many dealers are seeking to prevent a build-up of unsold cars by reducing their orders of new models. Some firms report cutbacks as high as 50 percent.

Financing for consumer purchases of new cars is becoming more difficult to obtain and, thus, contributing to the lower volume of auto sales. Most of the new car installment loans currently being made in the District are for 36 months at 7.5 percent add-on interest. However, financial institutions are reported to be very selective, turning down loan applications they would have accepted a year ago. For example, a large dealer in El Paso is experiencing a turndown rate three times higher than normal. Some dealers have been notified by their banks that this financing is no longer available, while others have recently experienced an increase in the discount rate banks charge.

Demand for recreational vehicles, specifically motor homes and camping trailers, is holding up well. A survey of some of the largest dealers in the District shows sales generally running ahead of a year ago, despite complaints by these firms that financing for their customers is becoming more difficult to obtain. Dealers report that the demand for motor homes has been strong since the easing of the energy crisis in March. Most buyers are showing a preference for the higher priced units, even though prices for most new models have been increased in excess of $1,000. Inventories are generally reported to be in line with sales. Retailers of camping trailers are also experiencing a higher level of sales, which they attribute partly to an influx of buyers priced out of the motor home market. Prices of their units are also up sharply—as much as 20 percent for several popular models. Higher camper prices have led to brisk demand for used trailers, even though many older units now sell for more than their original price.

Loan demand at Eleventh District banks has apparently softened somewhat since mid-September. Despite substantial inflows of both demand and time and savings deposits, the volume of loans outstanding at the large commercial banks in the District has decreased. One reason for the decline may be increased selectivity on the part of bankers. However, recent reductions in prime lending rates of banks indicate that demand for bank loans may be weakening. Information available from one of the largest banks in the District indicates some strengthening in demand for loan participations by smaller banks. Although recent declines in the Federal funds rate have made loan participations relatively more attractive, greater demand for participations may also be an indication that smaller banks in the District are experiencing some decline in loan demand and are turning to participations with larger banks as an outlet for funds.