March 25, 1981
Overview
The economy of the Tenth District appears stable-to-slightly improving. Modest increases in retail sales are expected to
continue. Inventory levels are generally viewed as satisfactory.
Housing starts remain weak but inventories of unsold homes are not
excessive. Loan demand is generally flat-to-weak except in energy
growth areas. The winter wheat crop is in fair-to-good condition in
spite of generally dry soil conditions.
Retail Sales and Inventories
Virtually all Tenth District retailers
contacted report gains in total dollar sales in the first two months
of 1981 compared to the same period last year. The sales gains in
early 1981 in the District also show some slight improvement over
fourth quarter 1980 sales. Retailers indicate that recent sales are
strongest in apparel and other soft goods. Although durable goods
sales are still weak relative to early 1980 levels, there have been
recent improvements in appliance and furniture sales.
Most Tenth District retailers report merchandise cost increases in early 1981 of 5-10 per cent in contrast to negligible increases in the last half of 1980. Recent increases in merchandise costs have put some downward pressure on profit margins as most retailers try to remain price competitive.
Nearly all Tenth District retailers report satisfaction with inventory levels during January and February of 1981, when improved sales lowered stock-to-sales ratios. While all retailers expect to watch those ratios closely to keep inventories in line, inventory purchasing is expected to increase slightly because most District retailers expect sales to continue to improve through 1981. In particular, second and third quarter sales are expected to be up appreciably compared to a year earlier when the credit restraint program was influencing sales in part of the period.
Manufacturers' Inventories and Input Prices
Over half the
purchasing agents contacted report that input prices are above their
year-ago levels by less than 10 per cent, and about half report a
stabilizing trend in recent months. One-half of the companies
contacted are optimistic inflation will begin to decelerate. Lead
times on deliveries are satisfactory throughout the District.
Materials inventories are being maintained at low levels, although
most companies report they are buying at least as many input
materials as last year. As in January, about one-half the companies
contacted report excess operating capacity and laid-off workers.
Housing Developments
Homebuilders' Associations indicate that
housing starts are currently running a little behind last year's
slow pace. Most feel, however, that the number of 1981 starts will
show a small improvement over 1980. There are no reports of excess
inventories of unsold homes. New home prices in the District
continue to rise at about a 12 to 15 per cent annual rate. Due to
some mill shutdowns there are some local lumber shortages, but other
materials are readily available though prices are rising somewhat.
Agriculture
The winter wheat crop is in a fair-to-good condition
across the District, despite a lack of snow cover during the winter.
Wheat pasture use has been very limited. Soil moisture conditions
remain dry throughout the District, with Nebraska appearing to have
the most serious moisture shortfalls. Dry soil conditions may
encourage a shift in farm planting decisions toward more soybeans
and less corn acreage than would be suggested by current price
relationships. Energy costs for pumping irrigation water are
approximately 20 to 25 per cent higher this spring than a year ago.
Fertilizer supplies are adequate this spring with prices up about 15
per cent over 1980. Many cattle producers throughout the District
are experiencing significant financial difficulties. Some producers
are losing as much as $150 per head on the sale of fed cattle.
Feeder cattle numbers appear slightly higher and weight is generally
greater than in 1980. With many cattle producers facing liquidity
problems this spring and dry range-land prospects this summer,
feeder cattle markets may see strong selling pressure this spring.
Banking Developments
Reports on loan demand at Tenth District banks
are mixed this month. Banks in the energy-oriented areas of Oklahoma
and Wyoming report strong demand for commercial and industrial
loans, while banks elsewhere in the District generally report demand
to be flat-to-weak. Real estate, agriculture, and consumer loan
demand is generally weak in most parts of the District. The prime
rate is between 17 and 17 1/2 per cent at most Tenth District banks,
down from 20 per cent in January. However, banks report little
customer reaction to the decrease in lending rates.
Deposits at Tenth District banks are generally rising, with much of this strength coming from money market certificates and NOW accounts. All banks contacted are currently offering NOW's and most report them to be quite successful. While demand deposits are generally down, most banks attribute this weakness to the advent of NOW accounts and seasonal factors. Most banks report that time deposits other than MMC's, and savings deposits other than NOW's, are either stable or declining. About one-half of the banks contacted are allowing their large CD's to run off as a result of weak loan demand. However, banks with strong loan demand are successfully marketing their large CD's.