September 20, 1989
Overview
The Tenth District economy is still growing moderately. Retail sales
are up over last year and over the last three months. Automobile
sales are down from last year, but up slightly from last month.
Manufacturers report moderate price increases for both inputs and
products. Inventories at retailers are low and expected to stay low.
Manufacturers, however, are trimming inventories from relatively
high levels. Drilling activity has increased slightly in recent
months. Housing activity remains weak. Loan demand at commercial
banks remains flat, while deposits have increased. Recent rains have
alleviated the drought situation, and agricultural credit conditions
continue to improve.
Retail Sales
District retailers report sales increases over last year and over
the last three months, with additional improvement expected as the
holiday season approaches. Most respondents plan to keep inventory
levels low in the upcoming months. Recent higher costs have led some
retailers to increase prices slightly, but most expect stable prices
in the future. Automobile dealers report slightly higher sales over
the last month, but sales this year to date remain down from a year
ago. Most dealers continue to trim inventory levels and expect sales
to continue at about their current pace.
Manufacturing
Most respondents report moderate input price increases from a year
earlier. Prices have increased in the past three months but are
expected to stabilize soon. Firms report no problems in acquiring
materials, although lead times have lengthened. Most respondents
continue trimming inventories from relatively high levels. Many
plants are operating at full capacity, with some extending work days
or shifts. Labor supply is not a problem, although one aircraft
manufacturer reported a shortage of experienced labor.
Energy
Although district drilling activity remains below year-ago levels,
more stable oil prices and increased exploration for natural gas
have brought some recent improvement to the district's energy
industry. After increasing sharply in July to 249, the average
number of active drilling rigs in the district increased again to
259 in August. Exploration and development activity nonetheless
stands about 5 percent below the level of one year ago.
Housing Activity and Finance
Most district homebuilders report housing starts down from a year
ago. Compared with a month ago, housing starts vary across the
district. Most respondents report that construction materials are
available and that prices are generally stable. New home sales are
slow, and most respondents expect only slight improvement for the
rest of the year.
Deposit flows at district savings and loan institutions have mostly held steady over the past month, although a few respondents have noticed a slight outflow of funds. Respondents expect steady deposit flows in coming months, with slightly increased inflows expected only after press coverage of the new savings and loan legislation dies down. Mortgage demand has been down modestly over the summer months, and respondents expect a further seasonal decline during the winter. Respondents report stable mortgage rates and believe rates will remain steady or drop slightly in the coming months.
Banking
District bankers report that total loan demand was stable during the
last month, with both consumer loans and commercial and industrial
loans reported as unchanged. Home mortgages and home equity loans
increased, however, offsetting a decline in commercial real estate
lending. Increased deposits brought declines in loan to deposit
ratios. Demand deposits declined during this period, but NOW
accounts, MMDAs, and small time and savings deposits were all steady
to slightly higher. IRA accounts and large certificates of deposit
were largely unchanged. About half of the respondents report a
reduction in prime rate during the last month, with the other half
reporting no change. Most respondents expect no further change in
bank lending rates in the near future.
Agriculture
Plentiful late summer rain is alleviating the severe drought that
affected much of the district during the past year. In Nebraska and
northern Missouri, where the corn and soybean harvest will begin
soon, the recent rains will boost crop yields. Still, yields may be
a fourth to a third below average. In Kansas, the rainfall did not
arrive in time to improve drought-diminished milo yields, and the
wet weather may delay the milo harvest. Cool, wet weather in
southwest Oklahoma has delayed the development of the cotton crop
and left the crop vulnerable to an early frost. Although recent
rainfall has temporarily halted winter wheat planting in Oklahoma
and could delay planting in Kansas, greater soil moisture will
benefit the early development of the new crop.
The rains have improved range and pasture conditions across most of the district. Adequate forage and strong cattle prices are encouraging district cattle ranchers to expand herds. The limited supply of young cattle available is likely to maintain high feeder cattle prices that, in turn, will limit profits for district cattle feeders.
In the parts of the district where the drought was most severe, bankers expect a slight decline in farm loan repayment rates. Well-targeted federal drought relief, however, will be of greatest benefit to those farmers suffering the greatest losses. On balance, agricultural credit conditions in the district continue to improve.