March 15, 1988
Overview
The economy of the Tenth District shows a mixed performance, but
slight improvement overall. Retailers report flat to slightly
increasing sales compared with a year earlier, and auto sales show
some recent improvement. Farm incomes are up considerably. Home
mortgage demand and housing activity are relatively weak, however,
and improvement in the district's energy industry has been slowed by
weaker oil prices. Loan demand and deposits at commercial banks are
off slightly.
Retail Sales
Tenth District retailers generally report flat to slightly improving
sales when compared with a year ago, but slightly worsening sales
over the past three months. Only modest general price increases are
reported. While most respondents are satisfied with present
inventory levels, nearly all report continuing tight inventory
management. Sales are estimated to be flat to moderately increasing
in the months ahead.
Automobile Sales
Automobile dealers generally report some recent improvement in
sales. Although most dealers report steady inventories, some dealers
are concerned that stocks are too large relative to sales. Overall,
dealers are not very optimistic about 1988 sales.
Manufacturing
Manufacturers' input prices are reported to have risen moderately in
the past year, with the exception of substantial increases for
steel, plastic, and aluminum. Future increases are expected to be
slight, except for a moderate further increase in aluminum prices.
Respondents report that current inventories of materials inputs are
too high, and they plan further trimming. Capacity utilization
varies by respondent, ranging from 70 percent for a paint
manufacturer to virtually full capacity for a manufacturer of small
electric home appliances. Only a few respondents report any problems
with availability or lead times for inputs. Firms selling abroad
expect further improvement in 1988.
Energy
Weakening crude oil prices have begun to erode some of the stability
established in the district's energy industry last year. The average
weekly number of operating drilling rigs in the Tenth District
decreased from 363 in December to 307 in January. In February the
rig count fell further to 271, still about 21 percent above the
February 1987 average. Soft prices and continuing uncertainty about
OPEC's resolve to rein in production could postpone further
improvement in the district's energy sector.
Housing Activity and Finance
Activity in the housing sector shows slight improvement across the
district. Homebuilders report that housing starts are up compared
with last month but down substantially from a year earlier. Single-
family construction has improved while multi-family construction
continues to be weak. Most respondents express optimism for single-
family construction in the spring. Delivery times and availability
of construction materials remain about normal.
Most responding savings institutions report that savings deposit inflows are up compared with a year ago, with some tapering off since the beginning of this year. Overall, little or no change in inflows is expected in the near future. Mortgage demand has been weak in most areas, but most respondents expect a pick-up in the spring. Mortgage rates are stable to declining, but several respondents expect some increase in the second half of the year.
Banking
District commercial bankers report slightly lower total loan demand
last month. Demand for commercial and industrial loans, consumer
loans, and commercial real estate loans was down slightly. Demand
for agricultural loans was unchanged and demand for residential real
estate loans was up slightly. The prime rate fell 25 basis points on
average, and consumer lending rates also fell slightly. No further
change is expected in the next month in either the prime rate or
consumer loan rates. Total deposits fell slightly because of
decreases in demand deposits, conventional NOWs and large CDs. These
decreases were partially offset by slight increases in MMDAs, IRAs,
and small time deposits. Super NOWs and passbook savings accounts
were unchanged on average.
Agriculture
Tenth District farm incomes were higher in 1987 as earnings were up
substantially for livestock producers, and crop farmers generally
had an exceptional year as well, While gross farm incomes were up
considerably, improvement in after tax incomes may be less dramatic.
Government farm programs will be popular again in 1988. Higher crop prices are not discouraging program sign up, and a majority of farmers in the district are opting for the basic 20 percent required set aside. There is less enthusiasm for the additional 10 percent voluntary set aside, and very little interest in the 0/92 program— a program which pays 92 percent of eligible deficiency payments in exchange for idling all acres. The Conservation Reserve Program (CRP), however, has been quite attractive. Bankers report that in many areas most of the eligible acreage has already entered the program, and sign up is tapering off. In other areas, the relatively complicated requirements for program compliance have made the CRP less popular.
Agricultural loan demand appears flat for 1988, with both lenders and borrowers maintaining a conservative approach to agricultural credit decisions. A few bankers anticipate a limited increase in loan demand for livestock expansion. Some renewed activity in the farm implements market may also provide a limited source of increased loan demand.