February 9, 1977
Tenth District purchasing managers report that materials availability is good, price increases have been relatively modest recently, and inventories are generally at desired levels. Steel and polyethylene are the two areas cited as especially soft. The weather has not as yet created any serious supply problems. Although food prices may rise somewhat due to weather-damaged fruits and vegetables, ample supplies of red meat should continue to dampen the total increase in consumer food costs for at least the first half of 1977. Agricultural loan demand has been weaker than usual, but some bankers expect this to change as spring approaches. On the other hand, real estate, commercial, and industrial loans have been above their seasonal norm in some District states.
Tenth District purchasing managers indicate that conditions are little changed from those reported in December. Across a wide range of industries, materials availability is good to excellent and is expected to remain so through 1977. Prices are generally behaving as last year and inventories are being closely controlled. Weakness in both sales and prices is noted, however, by steel warehousers and fabricators. One respondent observed, "The mills are crying for business and so are we. Deals are being made daily." Price weakness is also cited in the market for polyethylene and certain chemicals. Some managers are concerned that the weather might create temporary problems with their East Coast suppliers. For example, the Ford assembly plant in Kansas City was forced to close temporarily, but widespread general problems have not yet developed. While most respondents report their inventories as "where they should be," "intentionally lean," and "in good shape," a few have increased levels above last year in anticipation of higher demand. Overall, the mood of surveyed purchasing managers appears to be one of cautious optimism.
Though prices received by farmers increased 1.5 per cent during the month ending January 15, they remain 2 per cent below year-ago levels, while the index of prices paid by farmers is 4 per cent above year-ago levels. Farmers received higher prices for vegetables, feed grains and hay, meat animals, and oil-bearing crops. However, the index of meat animal prices remains 9 per cent below year-earlier levels, despite modest improvement in the month ending January 15.
Ample supplies of red meat should continue to dampen any increases in consumer food costs that might arise from the weather-damaged fruit and vegetable crops, at least during the first half of 1977. Although numbers of cattle on feed January 1 were 3 per cent less than a year earlier, they were 24 per cent higher than 2 years ago. Feedlot placements during the fourth quarter of 1976 were up 5 per cent over a year ago and 34 per cent above 2 years ago. Distress sales of cows and calves between now and April 1, due to drought and winter feed shortages, will further add to the beef supply. However, large beef supplies during the first half of 1977 will likely be followed by shorter supplies and higher prices during the last half of the year.
Pork producers have increased their farrowing plans for December 1976-May 1977 by 5 per cent over year-ago levels. Combined with a June-November 1976 pig crop that was 18 per cent larger than a year earlier, pork is expected to remain in good supply through most of 1977. Consequently, hog prices will likely decline from present levels and remain below 1976 levels for most of the year.
Total loan demand during January at Tenth District banks was seasonally stronger than usual due to larger than normal increases in real estate, commercial, and industrial loans in Nebraska and Colorado. Respondents from the remainder of the District reported either flat or declining loan demand. In contrast to strength in these categories, agricultural loan demand was weaker than usual.
The demand for real estate loans appears to be mostly for construction on commercial property. Respondents almost uniformly indicated no residential loan demand, although one banker in New Mexico felt that this category would pick up later in the year. In the commercial and industrial category, respondents in Colorado indicated that loans were being extended to ski resorts which at this time of the year would normally be repaying prior loans. These same respondents also indicated strong loan demand by companies engaged in coal mining and oil drilling.
According to most respondents, agricultural loan demand was weaker than usual because of the effect of the adverse weather on cattle feeders. A few bankers, however, indicated there were cattle loans that soon would have to be extended. Some respondents also felt that agricultural loans would increase in the spring, especially if some replanting needs to be done this spring because of damage to the winter wheat crop.
Investments in the Tenth District have also increased substantially more than usual, with a good deal of the increase being in the 1- to 5-year maturity category. Most respondents indicated that their own banks were investing in relatively shorter term maturities because they were anticipating that interest rates would increase shortly.