Large commercial banks in the District report that overall business loan demand has eased in recent weeks. Loan requests associated with capital spending projects, for example, are running well behind the pace of last summer as many firms have postponed or scrapped expansion plans. Moreover, a growing number of firms are obtaining additional capacity by acquiring the manufacturing facilities of hard-pressed competitors. This trend has been responsible for a sharp increase in business acquisition loans.

District bankers believe that the demand for inventory loans has peaked. Although stocks are currently at record high levels for many customers, most of these firms have cut purchases sharply as sales have fallen. The result has been a softening in demand for loans to increase inventories. But the high level of inventories has resulted in substantial increases in the number of loan renewals and credit line extensions for short term commercial accounts. Moreover, several suburban banks report that delinquencies on commercial accounts, especially those of small retailers, arc up sharply. Many of these retailers have been severely hurt by defaults on past-due accounts. If Christmas sales are sluggish, these bankers maintain, a number of retailers and manufacturers will probable face serious liquidity problems.

Loan demand for interim construction financing has fallen sharply since last summer. The greatest cutbacks have been in residential building, both for single-family and multi-family units, and in construction of suburban office buildings. However, bankers admit that part of the slowdown in interim construction lending has been due to increased selectivity on the part of loan officers. The largest bank in Fort Worth, for example, is not taking on any new builders as customers. In addition, old customers must have performance insurance and complete long-term financing arranged for a project before their loan requests will be considered.

Consumer installment loans have been flat since September, reflecting, in part, fewer requests for new car loans. In addition, most lenders complain that many loan applicants are badly overextended. This has led to a substantial number of new car loans being turned down, as well as increased delinquencies on existing installment loan and credit card accounts. Heavy consumer indebtedness has also resulted in a marked jump in requests for debt consolidation loans. However, bankers report that the majority of these requests are denied due to the poor credit worthiness of the applicants.

The labor market in the District states is considerably stronger than for the nation as a whole. The unemployment rate is currently 4.9 per cent, down from 5.0 per cent in September. Increased drilling for oil and gas in Texas and Oklahoma has contributed significantly to the stable job market. The number of workers presently engaged in mining activity in the five southwestern states is 6 per cent greater than at this time a year ago. However, while the job market generally remains "tight," there are reports of layoffs in several sectors. The electronics industry appears to be the hardest hit with a few large firms announcing layoffs. Also, there are widespread reports that many retailers will not hire additional Christmas help and are terminating most of their part-time workers. Moreover, store managers report that layoffs following the first of the year will probably be greater than normal. Some other retailers, especially national chain stores, have cut workweeks from 40 hours to 30 hours. In the construction sector, a number of firms have indicated that employees will be dismissed as present contracts ate terminated. An El Paso firm, for example, with more than 100 workers plans to maintain only an office staff and one or two maintenance personnel after the completion of current projects.

District agricultural conditions have deteriorated as a result of poor crop yields and depressed livestock markets. The production of rice, corn, and soybeans, advanced in the five District states this year; but a big shortfall in the harvest of wheat, cotton, grain sorghum, and hay has cut the expected total crop output by al)out 18 per cent. In Texas, the nation's largest cotton-producing state, unfavorable weather conditions during the growing season reduced the cotton harvest to 2. 8 million bales this year from 4. 7 million bales in 1973.

The livestock industry in the southwest has been severely squeezed by the sharp rise in feed costs and the rapid decline in beef prices at the producer level. Large supplies of calves, continued financial losses at feedlots, higher feed grain prices, and rapid increases in other operating costs are cause for deep concern as to the financial stability of the cattle industry. Since costs of production often exceed livestock prices, many cattlemen are renewing existing loans that normally would have been fully repaid by this time. And with the number of cattle on feed reduced by more than a third from year-earlier levels, commercial cattle feedlots are experiencing serious financial difficulties. As a result of the slowdown in agricultural sales and much higher production costs, farm incomes this year are expected to drop sharply from the record levels in 1973.