January 22, 1992
Overview
The Tenth District economy still appears to be growing slowly but
unevenly. Retail sales are up modestly, with Christmas sales
apparently somewhat better than a year ago. Housing activity also
continues to improve. But signals from the manufacturing sector are
mixed, auto sales are down, and energy activity is slackening.
Moreover, the farm sector has retreated somewhat from its recent
peak performances. Prices generally remain steady both at retail and
for many manufacturers' inputs. Most retailers are satisfied with
current inventory levels, while manufacturers are striving to reduce
their inventories of materials and other inputs.
Retail Sales
Retail sales have improved slightly over the past month, with
apparel sales accounting for much of the improvement. Sales were
generally weak, however, with Christmas sales up only modestly from
last year. Just a slight improvement in sales is anticipated this
year. Retailers report stable prices over the past month and expect
small price increases in 1992. Most retailers are satisfied with
current inventory levels and expect little change in the coming
months.
Auto sales declined slightly in the district over the last month. Some potential buyers still find it difficult to get loans due to tighter credit standards. While automobile dealers expect sales to begin picking up in the next few months, most of them are still trimming inventories.
Manufacturing
Purchasing agents report mixed price changes. The prices of metals
and fuel have fallen, while the prices of some manufactured
components have increased. Agents expect prices to remain stable for
the next few months. Materials are readily available. Most firms
have been trimming inventories and plan further reductions. Plants
are generally operating below capacity. Exports have risen in recent
months, especially for firms with markets in Mexico and South
America.
Energy
Energy activity in the district has weakened recently due mainly to
falling oil prices and an outlook for soft prices throughout the
year ahead. The average number of operating drilling rigs in
district states decreased from 237 in November to 228 in December.
The December rig count was 33 percent below its year-ago levels.
Housing Activity and Finance
Housing starts in most areas of the district increased somewhat from
the previous month and were much higher than a year ago. Builders
expect starts to increase further in the first quarter of l992 and
in the year as a whole. The prices of some building materials,
especially lumber, have increased. Sales of new homes are higher
than a year ago, with prices higher in some district areas but
unchanged in others. According to most survey participants,
inventories of new homes are below normal.
Most district thrift institutions report deposit outflows during recent months. Respondents expect outflows to continue at a steady pace over coming months because of low rates on deposits. Mortgage rates have dropped at least 100 basis points over the past three months but are expected to level off in coming months. Mortgage demand and commitments are strong due largely to refinancing. Respondents expect mortgage demand to remain strong during coming months, due to both refinancing and new home purchases.
Banking
Changes in total loan demand were mixed last month, with half of the
respondents reporting no change and equal numbers of the remaining
respondents reporting increases and decreases. Demand for home
mortgages rose, while demand for consumer loans, construction loans,
and commercial real estate loans were flat to down. Loan-to-deposit
ratios were generally unchanged from the previous month but lower
than a year ago.
All respondents reduced their prime rates last month and almost all expect to leave these rates unchanged in the near future. More than half of the respondents also reduced their consumer lending rates last month, and a few expect to lower rates further in the near future. Lending standards were unchanged.
Deposits increased at most reporting banks. Increases in demand deposits, NOW accounts, and MMDAs outweighed decreases in large CDs and small time deposits.
Agriculture
After a poor start, the winter wheat crop has improved due to recent
widespread precipitation. The crop's condition is now average to
above average in most areas. More moisture is needed to ensure
further crop development due to dry subsoil conditions in parts of
the district.
Yearend credit reviews for district farm borrowers showed little change from a year ago in the number of problem loans. But credit reviews did reveal a growing disparity between livestock and crop borrowers. Bankers report that some livestock producers struggled to repay loans as cattle and hog prices slumped in the last half of 1991, while crop farmers benefited from rising wheat prices. Bankers expect the divergence in crop and livestock incomes to continue in 1992. Nevertheless, bankers expect only a slight increase in problem loans overall.
Bankers expect farm loan demand to be steady in 1992. Demand for livestock loans may fall, while demand for wheat operating loans may edge up as farmers take advantage of higher wheat prices. A few banks report increased demand for real estate loans as nonfarm investors move funds our of certificates of deposits to purchase farmland.