August 8, 1990
Overview
The Tenth District economy continues to grow moderately. In the
energy sector, drilling activity has picked up recently and remains
well above the level of a year ago. Retail sales are unchanged or
slightly higher than a year ago, but sales are mixed. While many
retailers and manufacturers are trimming inventories, automobile
dealers are keeping new car inventories at current levels. In the
agricultural sector, winter wheat yields are average or better
across most of the district. Yet the surge in production is driving
wheat prices down sharply, limiting income gains for district wheat
farmers. Housing starts in the district have fallen from a year ago,
but prices for new homes remain stable. Although mortgage rates are
edging down, mortgage demand stays mixed. Commercial bankers report
slightly higher total loan demand, primarily for consumer and home
equity loans. Demand for commercial, industrial, and real estate
loans remains stable.
Retail Sales
District retailers report sales are unchanged or slightly increased
from a year earlier, but mixed over the last three months. Sales are
expected to increase slightly during the rest of the year. Demand is
especially strong for women's apparel, while sales for junior wear
is weak. Prices are changing in line with cost increases, but are
expected to remain steady in coming months. Retailers are trimming
inventories. Over the last month, new auto sales have improved
slightly in some district states but have slowed in others. Adequate
financing is available both for inventories and for potential
buyers. Most dealers are maintaining current inventory levels as
sales are expected to continue at their current pace.
Manufacturing
Most purchasing agents report only slightly higher input prices over
a year ago. Prices have been mostly stable over the past three
months and are expected to remain so over the next three months.
Most agents report no difficulty obtaining materials and expect no
problems for the rest of the year. Lead times for steel are
increasing but are expected to decrease over the remainder of the
year. Many firms are trimming inventories, and plants are operating
below capacity.
Energy
After plunging to near $15 a barrel in late June, domestic oil
prices have increased in recent weeks on speculation that OPEC will
reduce oil production. Nonetheless, the price of West Texas
Intermediate crude oil remains $5 below its level at the beginning
of the year. Exploration and development activity in the district
picked up in June and remains well above the year-earlier level. The
district rig count increased from 266 in May to 290 in June, up
almost 30 percent from June 1989.
Housing Activity and Finance
Housing starts are down from a year ago in most areas of the
district but have stabilized over the last month. New home sales are
improving slightly, and prices remain generally stable. Builders
report no problems with delivery times or availability of materials.
New homes sales are expected to be steady to slightly lower the rest
of 1990.
Most district savings and loan respondents report net inflows of deposits over the last month. Net deposit flows generally are running higher than they were a year ago and in the previous month. Respondents expect deposit growth to continue in the near term. Mortgage demand has been mixed. Mortgage rates remain stable to slightly lower and are expected to fall further in the near future.
Banking
Commercial bankers report that total loan demand increased slightly
over the last month. Demand strengthened primarily for consumer
loans and home equity loans. There has been little change in the
demand for commercial and industrial loans or for residential real
estate loans. Commercial real estate loans have been steady overall,
although a few banks are reducing lending for commercial real estate
and land development because of concerns about credit quality. None
of the respondents report a change in their prime rate over the last
month, and few expect the prime rate to change in the near future.
Most bankers also report no change in consumer loan rates. The level
of investments have increased at Tenth District banks over the last
month. Total deposits are rising because of increases in demand
deposits and small time deposits. Large certificates of deposit, NOW
accounts, and money market deposit accounts remain generally
unchanged.
Agriculture
Harvest of the district's winter wheat crop is nearly complete.
Wheat yields and quality are average to well above average across
most of the district. The wheat crop in Kansas, the nation's leading
wheat producing state, is estimated to be the largest crop on record
and more than double the size of last year's drought-reduced crop.
The surge in wheat production, however, is driving wheat prices down
sharply, limiting income gains for district wheat producers.
The district's corn, soybean, milo, and cotton crops are generally in good condition. Crop development in Missouri and eastern Kansas is well behind normal, however, due to planting delays caused by excessive spring rains. Dry weather since late June his left crops in western Kansas and Nebraska in need of additional moisture.
The limited availability and high cost of feeder cattle has resulted in a modest reduction in district cattle feeding activity. Strong cattle prices continue to support incomes of district cattle ranchers, but the high cost of feeder cattle is limiting profit margins for cattle feeders.