November 12, 1975
Retail sales in the Tenth District were generally strong in the early fall, and sales in November and December are expected to be stronger yet. Soft goods sales tend to be outpacing durables sales, and retail inventories have been expanded in line with strong sales anticipation, but inventory policy overall is still described as cautious. New domestic auto sales are well above those of a year earlier, with stocks apparently ample. Business loan demand at Tenth District commercial banks remains weak, however, even among retailers. Fall crop production was historically large and better than expected earlier, and recent rains have improved prospects for next year's winter wheat crop.
Retailers in metropolitan areas of the Tenth District have generally experienced strong sales this fall. Major exceptions seem to be in sales of seasonal items, ranging from winter coats to snow tires, because the weather has been unseasonably warm. Nearly all respondents reported expectations of very strong sales in November and December (including the Christmas season), making for a good fourth quarter. Although there seems to be a tendency for improving sales in durables, soft goods sales are apparently outpacing them. Among durables, furniture was singled out by several retailers as selling very well. Among non-durables, clothing sales were particularly noteworthy, especially men's clothing across the whole range from sports and leisure to business and dress clothing. Some respondents noted that consumers have continued to be "exceptionally cautious" and "value conscious."
It is somewhat more difficult to generalize about inventory policies and level of stocks. A number of retailers stated that their expectations for strong sales had led them to stock up heavily, but they regard those stocks to be about where they want them right now. In relation to anticipated sales, others spoke of inventories being under "tight rein" or "tight control" and described themselves as being "very conservative on inventories." Several mentioned no problem in getting deliveries of goods; only one complained of slowness in deliveries. Finally, one respondent noted that, to avoid the risks of being overstocked should sales turn sour, his firm had "plenty of inventory—all we want—yet our inventory levels are low."
Sales of new domestic automobiles in the Tenth District are doing very well compared to a year earlier, according to reports received from dealers in several district cities. There seems to be no clear pattern of any particular size group taking command, although there is some inkling in the reports that small cars are perhaps not doing as well as expected. Stocks are generally reported as adequate, with no shortages other than for a few specific models.
Nearly ideal weather has pushed the fall harvest in the Tenth District well ahead of both last year and the ten-year average. Corn and soybean yields are better than had been expected, and final production figures for these two crops may well exceed October 1 estimates. Welcome rain over Oklahoma and Kansas last week substantially improved winter wheat crop prospects in those states. Rapid completion of drought-delayed wheat planting is expected, with seeded acreage in the Tenth District about equal to last year. However, the generally dry conditions throughout the winter wheat area will severely limit wheat-pasture grazing, which may hasten the movement of cattle into feedlots.
Expectations for favorable profit margins have already resulted in a sharp upturn in the number of cattle placed on feed. October 1 data for cattle on feed indicated that Tenth District placements for the third quarter were 2.5 million head, 19 percent above a year ago. For the 23 major feeding states, the increase was 22 percent. As a result, the number of cattle on feed on October 1 in the Tenth District and in the 23 states was 14 percent and 9 percent higher, respectively, than 3 months earlier, a trend counter to usual third-quarter declines. Although pork supplies are expected to remain tight for several more months, the expansion in beef output implied from the above data may be sufficient to stabilize red meat prices during the first half of 1976.
Loan demand at Tenth District commercial banks was generally reported as weak at most banks surveyed. In areas such as retailing, where there is typically a strong seasonal demand, loan demand was smaller than usual. Bankers said that business borrowers appear cautious about rebuilding inventories. Most bankers did report a seasonal increase in agricultural lending, with some mentioning stronger demands for cattle loans. The bankers surveyed have experienced little gain in auto loans with the introduction of the new car models.
Most respondents thought that a default on New York bonds would cause relatively minor short-term effects in financial markets. They felt a default might result in a favorable reappraisal of the creditworthiness of municipalities having good financial management and thereby allow those municipalities to borrow at relatively favorable terms.