January 17, 1996
Overview
The district economy continued to grow at a moderate pace
during the past month. Retail sales held steady at a level slightly
above last year's sales, and manufacturers continued to operate at
high levels of capacity. Homebuilding activity weakened slightly.
Agriculture's income prospects improved, and energy activity stayed
sluggish. While manufacturers report rising prices for some
materials and continued shortages of skilled labor, wages and retail
prices held steady.
Retail Sales
Most retailers report sales were unchanged last month
from the month before but remained slightly above last year's level.
Sales of home furnishings and electronic products were strong, while
apparel sales remained weak. Retailers generally expect sales to
remain unchanged or to rise slightly during the first quarter of
1996. Most retailers indicate their inventories are in line with
expected sales, although a few have plans to reduce inventories.
Automobile dealers report sales last month remained relatively
sluggish, which is normal for the season. Most dealers expect sales
to increase modestly during the next few months.
Manufacturing
District manufacturers continued to operate at high
levels of capacity during the past month. None report production
bottlenecks due to capacity constraints, although a few continue to
report shortages of skilled labor. Most manufacturers indicate
manufacturing materials were readily available, and little change in
the availability of materials is expected in the next few months.
While most manufacturers were satisfied with inventory levels, some
were trimming stocks.
Housing
Most builders report housing starts declined slightly last
month and remained below last year's level. While construction of
single-family homes remained sluggish, construction of multifamily
buildings strengthened. Sales of existing homes remained flat or
declined slightly in most of the district during the past month and
about equaled last year's sales. Builders report the unsold
inventory of new homes declined in recent months, in part because
winter weather slowed construction activity. Home prices continued
to rise, especially for low-priced homes that were in the shortest
supply. Building materials were readily available, and builders
expect little change in the availability or prices of materials in
the next few months. Most mortgage lenders expect mortgage demand to
remain strong in the months ahead
Banking
Most banks report loan demand was unchanged last month,
leaving loan-deposit ratios unchanged from the month before. Some
banks report gains in commercial and industrial loans, agricultural
loans, and commercial real estate loans. Consumer loans, home
mortgage loans, home equity loans, and residential construction
loans held steady. Security investments also held steady.
Total deposits rose slightly last month, but changes varied among different types of deposits. MMDAs increased, while small time and savings deposits decreased. Demand deposits, NOW accounts, IRA and Keough accounts, and large CDs held steady.
Half of the respondent banks reduced their prime rate last month, and most of the others expect to reduce their prime rate in the near future. While almost half of the banks also reduced their consumer lending rates, most of the others do not plan to lower consumer lending rates in the near term. Lending standards were unchanged.
Energy
Prices for crude oil and natural gas have increased
recently, but not enough to boost activity in the district's energy
industry. The average number of drilling rigs operating in the
district during the first three weeks of December was unchanged from
the month before and remained well below the year-ago level.
Agriculture
The district's winter wheat crop remains in fair to
poor condition, due to unusually dry weather. The wheat crop's
uncertain yield prospects, combined with tight global inventories
and strong export demand, have pushed crop prices to the highest
levels in years. The recent surge in crop prices partially offset
the financial impact of a disappointing 1995 crop in much of the
district.
Profits in the district cattle industry remain weak. After heavy losses during much of 1995. feedlots now report modest profits due to low prices for young feeder cattle and a recent increase in prices for fed cattle. The lower feeder cattle prices, however, have resulted in continued losses for many district ranchers.
Year-end credit reviews at agricultural banks revealed some decline in the quality of farm loan portfolios. The decline was due to heavy crop losses in some parts of the district and weak profits in the cattle industry. Still, agricultural bankers generally expect farm incomes to improve in 1996. Most bankers anticipate little improvement in cattle industry profits, due to high feed costs and large supplies of beef and other meats. But the bankers expect crop producers to receive a boost from higher crop prices.
Wages and Prices
Labor markets remain tight in much of the
district, and some manufacturers report shortages of skilled labor.
Reports of upward pressure on wages are few and widely scattered,
however. Manufacturers report rising prices for some materials,
especially plastics and packaging materials. Prices remain stable at
the retail level, however, and retailers anticipate no significant
price increases in the next few months.