May 10, 1977
Directors report that business conditions are generally good in the economy. Residential construction and retail sales continue to supply much of the best news. The economic outlook in the Tenth District has been brightened considerably by spring rains. Farmers are more confident of getting a good crop, but apprehensive about the price it will bring. Some directors feel the proposed energy program will have no effect at all on capital spending, while others see pronounced adverse effects. Only moderate increases in meat prices appear likely during the remainder of the year, as pork supplies are rising to offset decreases in beef production. The reports of bankers reflect both the cost-price squeeze in agriculture and the generally optimistic mood of businessmen in the District.
Most nonbank directors believe that the Carter energy program would adversely affect investment. Some say that it already has, by increasing uncertainty. Beyond that, they believe that the emphases on regulation and conservation cannot help but depress capital spending in the economy as a whole as well as in the energy business in particular. Two directors from the oil industry stress their worries about the longer-term implications of "public-utility type" regulation in energy. Current prices, they say, would be adequate incentive to encourage heavy investment in exploration and drilling if there were not the fear that future prices may be artificially depressed by controls, rendering such search and development unprofitable over its long pay-out period. A minority of nonbank directors feel that Carter's proposed energy program is too weak to affect much of anything.
Cattle-on-feed data from the 23 major feeding states have begun to support expectations of a slowdown in beef production. There were 10.6 million head of cattle on feed on April 1-3 per cent less than a year earlier and 11 per cent below January 1, 1977. By contrast, however, cattle-on-feed numbers in the Tenth District were 3 per cent greater than a year earlier-and Nebraska numbers were up 20 per cent. Despite January-March marketings that were up 2 per cent over year-earlier levels, beef production was down 3 per cent for that period. Thus, the expected 7 per cent decrease in April-June marketings from January-March levels should accelerate the apparent trend toward reduced beef production.
Thus far, decreases in beef production during 1977 have been more than offset by increases in pork production. In fact, total red meat output for January-March 1977 was up 2 per cent over 1976. On balance, larger pork supplies should effectively moderate expected price increases during 1977 for both pork and beef.
Tenth District banks report seasonally normal loan growth in April. Wyoming and Colorado respondents note strong real estate loan demand for condominiums and one-family residential structures, while in Oklahoma there is increased loan demand related to oil exploration and delivery. Some respondents in Nebraska and Kansas City report strong demands for loans by business and industry as well as by consumers. Several city bankers also report that country banks are selling them more agricultural loan participations. The city bankers, in turn, are approaching large money center banks for the funds. Almost all respondents involved in agricultural lending remark that their agricultural loan portfolios are large for this time of the year. They say depressed cattle and wheat prices have led cattlemen and wheat farmers to borrow more than usual for operating expenses.
Bankers also report that businessmen are increasingly optimistic about future expansion. Some are "cautiously optimistic" while others are "downright bullish". None of the bankers notice any impact whatsoever on business planning regarding plant and equipment expenditures as a result of the Administration's proposed energy policy, although some expect to see an effect in the future. Some respondents feel that security markets, not banks, will be the source of funds tapped for those purchases of plant and equipment that arise from the energy program.