March 20, 1986
Overview
Both current economic activity and the economic outlook have
improved recently in the Tenth District, apart from the difficulties
of the agricultural and energy sectors. Retailers report improved
sales and expect further increases. Auto dealers remain optimistic
about 1986 sales. While inventories of materials inputs are
generally satisfactory, some retail inventories are still viewed as
too large. Host area homebuilders expect further increases in
housing starts, as mortgage demand increases with further rate
declines. Tenth District banks report increased deposits but little
change in loans. Agricultural lenders continue to deny credit to a
significant proportion of farm borrowers.
Retail trade
The outlook for sales, prices, and inventory purchases appears
bright. Retailers report moderate to strong increases in sales over
year-ago levels and flat to slightly improved sales over the last
three months. Women's apparel and fine jewelry sales have been
strong. Sales are expected to rise moderately through 1986. Prices
have been reduced slightly and are expected to stabilize. Inventory
levels are satisfactory to heavy, leading retailers to expect steady
to slightly reduced inventory purchases for the remainder of the
year.
Automobile sales
Although auto sales are below year-ago levels, dealers are
optimistic about 1986 sales. Good credit market conditions are
helping auto sales. Most dealers report adequate inventory levels,
although some report that inventories are too high.
Purchasing agents
Most purchasing agents surveyed experienced a slight increase in the
prices of their major inputs over the year ago period, and they
expect prices to increase by 2 to 4 percent during the remainder of
1986. Although some firms are satisfied with current materials
inventory levels, most have been trimming inventories in recent
months.
Housing activity and finance
Area homebuilders report that starts of single family dwellings have
increased over the year ago period, while multi-family starts have
declined. Sales of new homes are above year ago levels, and new home
prices have remained steady. Most area homebuilders expect housing
starts to increase slightly during the remainder of this year.
Housing materials availability is good, prices are steady, no slow
delivery problems are reported, and these conditions are expected to
continue throughout the year.
Savings and loan institutions give mixed reports regarding current savings inflows relative to a year earlier, but they expect savings inflows to increase slightly during the next quarter. Mortgage demand has increased, primarily because the demand for refinancing has increased. Mortgage demand is expected to increase further during the upcoming spring and summer home buying season. Mortgage rates have been declining, and most respondents expect rates to remain at their current level or fall a little further. Most savings institutions have not taken advantage of the opportunity to reduce the minimum deposits on MMDA's, Super NOW accounts, and 7-31 day CD's.
Banking
Total loan demand was mixed and total deposits were higher at Tenth
District banks compared with a month earlier. Consumer loans,
commercial and industrial loans, residential real estate loans, and
agricultural loans were generally constant. Commercial real estate
lending decreased at most of the banks surveyed. Tenth District
bankers did not change their prime rate during the last month, but
more than half of those surveyed expect their prime rate to fall in
the near term. Most respondents either lowered their consumer loan
rates during the last month or anticipate lowering those rates in
the near future. Total deposits rose at Tenth District banks, with
MMDA's and seasonal increases In IRA's and Keogh accounts leading
the way. Most respondents report higher or unchanged levels of large
CDs. NOW accounts and small time deposits typically were constant.
Passbook savings accounts and demand deposits were unchanged or
lower.
Agriculture
Many commercial lenders in the district have nearly completed credit
reviews of their farm borrowers, but the results are mixed. On
average, bankers reported that 6 to 8 percent of their farm
borrowers will be denied credit this spring, a percentage at least
as high as a year ago. However, bankers in some states said a lower
percentage of their farm borrowers would be denied credit,
apparently because a large number of bad loans were written off
during the past year. Farm Credit System outlets in the district are
less than halfway through their credit reviews, but reported that
perhaps 10 percent of their farm borrowers will not get credit this
spring. Both the Farm Credit System and commercial banks referred
more of their farm borrowers to the Farmers' Home Administration
(FmHA) than a year ago. Because it is extremely difficult to qualify
for direct loans from FinflA, referred borrowers have been
encouraged to apply for FmHA loan guarantees.
All lenders surveyed had acquired a substantial amount of farm real estate through foreclosure. Most bankers reported that they would sell acquired property if they could do so without taking a loss. Only a few lenders said they are selling land as soon as possible after foreclosure, regardless of price. Others expressed concern about "flooding the market." In the meantime, many banks are leasing acquired farmland.