November 10, 1976
Sales by large retailers in major Tenth District cities generally exceeded expectations in October, resulting in a moderately optimistic outlook for the Christmas season. Retail inventories are generally reported to be about right, although a sizable minority of respondents had larger stocks than they desired. Dealers are uniformly optimistic about sales of the 1977 model cars. Plentiful grain stocks and livestock inventories are likely to help hold the increase in food prices down in 1977. Ranchers and cattle feeders are having a difficult time and—along with wheat farmers withholding grain from market—are a source of higher loan demand at District banks. Otherwise, bankers report only a stable loan demand.
Large retailers in major cities in the Tenth District generally report sales in October to have exceeded expectations, following somewhat weaker September sales. (Exceptions were not uniform with regard either to type of store or to geographic location.) The improved October performance has apparently resulted in some increased optimism for sales in the Christmas season, although the degree of optimism can only be described as moderate overall. One large catalog sales company reports that its Christmas sales are ahead of its expectations.
With few exceptions, stores reporting on relative strength or weakness of various product lines noted greater strength for durables than for nondurable goods. Appliances, home improvement items, and auto accessories were identified among durables selling well; the, picture for other home furnishings was mixed. Sales of both men's and women's clothes were generally reported to be strong, although some instances of weakness in women's apparel sales were reported.
Most retailers described their inventories as being about at the level they wanted them. One respondent described his stocks as "right for expected sales;" another indicated that inventories had been too heavy until his store's October sales increase. A sizable minority of respondents reported larger stocks than desired, however.
Nearly all retailers contacted spoke of a steady pattern of price increases for the things they buy, but with no unusual or outstanding price rises. Several respondents indicated that their own markups are holding steady. Retailers in the Tenth District report that the United Parcel Service strike has had very little impact, or none at all, on their operations.
Sellers of domestic new automobiles in the Tenth District are uniformly optimistic about sales of the 1977 model cars. Full-sized and intermediate-sized cars are selling best; sales of compacts and subcompacts are still weak. Most dealers continue to sell cars heavily loaded with optional equipment. New car inventories are generally low, with few exceptions; this goes beyond Ford dealers still feeling the impact of the strike. Dealers generally report that 1977 model sales would be better if their inventory situation were better.
Although farm prices fell 5 per cent during the month ended October 15 to a level 9 per cent below a year ago, price gains during the first half of the year will hold the 1976 average very close to the figure for 1975. Food prices, therefore, have exhibited greater stability this year than in the previous 3 years—rising an estimated 3 to 4 per cent. Recent reports on grain stocks and livestock inventories suggest that food supplies will remain plentiful at least until midyear 1977, which should help keep the lid on food prices. Most of next year's pressures on food prices are likely to arise from probable increases in marketing charges for labor, processing, packaging and the like. As a result, some acceleration in the rate of increase for food prices seems likely in 1977.
This has been a difficult year for ranchers and cattle feeders in the Tenth District. Agricultural bankers responding to the October 1 agricultural credit survey indicated only 13 per cent of their rancher and feeder customers would increase their net worths this year, while 50 per cent expected a decline. A large percentage of those expecting increases or no change in net worths attributed this solely to higher land values. One banker noted, "The land value increase is about the only answer to holding property statements together."
Higher input costs, low cattle prices, and slow selling by wheat farmers—who are holding crops for better prices—have resulted in markedly higher farm loan demand in the Tenth District from a year ago. Over 72 per cent of the bankers reported an increase in loan demand, and 39 per cent noted a decrease in loanable funds. Lower rates of loan repayments and more loan renewals or extensions were noted by just over half the bankers. These trends were particularly noticeable in the cattle and wheat raising areas of the District.
Total loans increased at Tenth District banks in October. However, bankers contacted for the survey reported only a stable loan demand. Most stated that they would like to build up their business loans and are actively seeking new corporate customers. They reported normal to good automobile sales for their areas, but most stated that their automobile loans had not increased because their terms were not competitive with other automobile financers. One banker reported a brisk pick up in loans to retailers due to earlier than usual shipments of Christmas merchandise.
The recent declines in the prime rate have resulted in pressure on earnings for several banks. These bankers stated they were trying to trim their costs primarily by reducing overhead. Also, they have lowered their rates on large CD's and reduced their purchases of Federal funds. Bankers are reluctant to reduce the rate on consumer-type time accounts from the maximums because of the competition for these deposits.