October 14, 1980
Overview
Growing concern about the future prospects for business
activity is apparent among Tenth District businessmen. An increasing
pessimism is evident among auto dealers and in the homebuilding
industry, as rising interest rates appear to be dampening activity
in those sectors. Lighter inventories are being sought by retailers,
and manufacturers are trying to reduce materials inventories. Meat
supplies, now plentiful, are expected to tighten next year, bringing
higher prices. Loan demand at District banks is generally flat, and
deposits are growing moderately.
Retail Sales and Inventories
The majority of Tenth District
retailers surveyed report that sales in the latest three months were
slightly better than sales in the first half of 1980. Sales appear
to be strongest in apparel and nondurable home furnishings, with
some weakness still existing in big ticket items such as appliances
and furniture. Remarkably, all District retailers report slight or
nonexistent increases in merchandise costs in recent months. A
majority of retailers contacted intend to approach the fall and
Christmas seasons with lighter inventory levels than last year,
which will in some cases require reducing their purchases of
merchandise. Most retailers expect only slight sales gains in the
last quarter of 1980 compared to the last quarter of 1979.
Automobile Sales
Recent changes in credit market conditions have
adversely affected District auto sales, particularly in Missouri and
Colorado, as consumers have become noticeably more reluctant to buy
cars since the recent rise in interest rates. Fewer banks are making
auto loans, and dealers and consumers are relying more heavily on
credit from the automakers' finance companies. Although dealers
generally have reduced their inventory plans in the last month, they
are still, guardedly optimistic about the 1981 models-though
somewhat less optimistic than a month ago.
Manufacturers' Inventories and Input Prices. Although almost all of the purchasing agents contacted report a stabilizing of input prices in recent months, over half feel that this trend will not last, and that prices will resume rising by yearend. Most input lead times are considered short, but are expected to start lengthening because most suppliers no longer have excess inventory. Most purchasing agents are ordering less than last year, and are trying to reduce materials inventories.
Homebuilding and Home Finance
According to Tenth District
homebuilders and savings and loan associations, recent increases in
interest rates have had a negative impact on the housing sector. New
house sales in some areas have dropped to the low levels experienced
in the spring of this year, but inventory levels of new homes are
not now critically high. Housing starts have slowed to a near
standstill, with few builders willing to make advance commitments.
Savings inflows have improved slightly because of the lag between
recent increases in interest rates paid by savings and loans and the
adjustment of fixed rate money market instruments that compete with
those associations for funds. Current mortgage rates average about
14 per cent on conventional loans at District associations, an
increase of 1 to 2 per cent from two weeks ago. At the higher
mortgage rates, demand for mortgage funds has slowed appreciably.
Agriculture
U.S. meat supplies, which appear plentiful now, are
expected to be substantially tighter during most of next year. Hog
inventories for Tenth District states are 8 per cent below year-
earlier levels, while nationwide inventories are only 3 per cent
lower. Although hog marketings for the remainder of 1980 are
expected to equal or exceed marketings during late 1979, farrowing
intentions suggest a substantial reduction in pork slaughter during
the first three quarters of 1981. Consequently, hog prices are
expected to improve through mid-1981. September 1 cattle on feed
numbers indicate a 14 per cent decline from year-earlier levels in
feedlot inventories for Colorado, Nebraska, and Kansas. Marketings
of fed cattle during August were 13 per cent below 1979 levels for
the three District states. Placements, of cattle into feedlots in
the seven major feeding states increased 20 per cent from August
1979 levels, while District states' placements rose 16 per cent
during this same period. Feeder cattle prices have increased 5 per
cent during the past quarter, but remain 8 per cent below year-
earlier levels.
Banking Developments
Loan demand remains flat at most Tenth
District banks contacted this month, with exceptions at some banks
in Oklahoma, Wyoming, and New Mexico where local economic conditions
remain strong. Commercial real estate lending continues to be strong
in Oklahoma and Colorado, but in other areas of the Tenth District
all types of real estate loans are weak. Most bankers report that
consumer installment loans for automobiles are unchanged from
earlier low levels. The recent rise in interest rates has raised
bank lending rates significantly above the rates offered by
automobile finance companies such as GMAC. Other categories of
consumer loans increased somewhat from last month's levels.
Deposits at most Tenth District banks contacted rose this past month, with six-month and 30-month certificates showing the greatest strength in response to the rise in interest rates. Demand deposits experienced moderate growth in regions with strong economic activity and are flat in most other areas.