Beige Book Report: Kansas City
August 12, 1970
The effects of the national economic recession continue to be felt in the Tenth District. Weakness appears to be fairly widespread, both geographically and by type of business, and there is a general air of uneasiness and apprehension. Although activity remains fairly strong in much of the Rocky Mountain, Nebraska, and Oklahoma areas, unemployment, strikes, rapid increases in personal bankruptcies, and a slowing down in payment of accounts were referred to frequently by Board members, bankers, and other businessmen. In addition, the existence of hot weather and a number of exceptionally dry areas in this agriculturally oriented region give rise to locally gloomy moods and pockets of especially slow business activity.
Most commercial banks reported some success in efforts to improve their liquidity position during the past month. Country banks generally enjoyed increasing deposits because of an excellent wheat harvest and a large influx of Government payments. City banks have had a slower growth rate during this period, with all of the increase being in time deposits. Demand deposits have declined, with decreasing individual, corporate, and U. S. Government demand accounts in city banks more than offsetting a alight increase in interbank accounts.
Loan demand continues to remain strong in city banks, but is generally nominal in country banks where deposits have increased rather sharply. City banks report many requests from corporate borrowers to back their commercial paper 100 per cent with lines of credit. These city banks believe the commercial paper market has stabilized and these lines will not be called upon if additional catastrophes can be avoided.
Several large banks in the Kansas and Western Missouri region reported increasing collection difficulties and a marked increase in voluntary individual bankruptcies. The voluntary bankruptcies were most frequent among credit card users. In these cases individuals tend to maximize their borrowings from all sources, including credit cards, and then file for bankruptcy. This region includes Kansas City, which continues to be plagued with a prolonged construction strike, now in its fifth month. The slowdown in the aerospace and air transport industries also has had the severest impact on the Kansas-Missouri region.
Commercial and industrial construction activity appears to be slowing in the District, thus supporting the notion of reduced business fixed investment spending. Several large firms have reported cutting proposed capital investment plans substantially during the past few months to make sure that they would live within their cash flow. Although firms may not be able to do all the capital spending they would like, there continues to be a need to replace and update equipment in order to improve productivity—and such spending received first priority. While business construction is off, homebuilding appears to be showing some evidence of recovery.
The petroleum industry is confronted with a unique problem. Until recently, imported crude could be delivered on the east coast at substantially lower prices than could domestic crude. This price differential discouraged domestic exploration for oil. With the recent difficulties in the mid-east, tanker rates have increased by as much as 300 per cent, and imported crude now sells at about 75 cents per barrel above domestic crude on the east coast. Thus, domestic crude prices are under pressure, and at least one oil company has announced price increases in the Tenth District.
Business is slow for District farm implement dealers. Inventories are relatively large, and cases of price cutting are not uncommon. Collections on credit sales are reported to be noticeably slower than last year.
The interrelatedness of Tenth District economic activity with both national and international business conditions is illustrated by the experience of a Kansas City manufacturer of bottling and automatic vending equipment. This firm's total business is about unchanged from a year ago, with increasing international business about offsetting a definite decline in domestic sales. The decline in domestic sales is attributed to reduced overtime and lower employment in factories with vending machines, as vending machine operators drop routes and defer the purchase of new equipment. There is some concern within the firm that their growing international business will be hurt by retaliations against U. S. restrictions on imports.
The aircraft industry is having trouble from production down through the transport phases. Unemployment in Wichita, where the aerospace industry is important, is reported in excess of 10 per cent. Tulsa also reports difficulties in the industry. The air transport industry, which is important in several District centers, reports continued problems in revenue and unemployment. Although pleasure travel appears to be holding up reasonably well, business travel has been off sharply. Most airlines have found it difficult to operate much above year-earlier levels and, with the introduction of the 747's which were contracted for on the basis of an average 10-15 per cent increase in passenger traffic, it has been difficult to meet costs. Preliminary data indicate that passenger traffic in July improved. But substantial improvement over an extended period of time will be necessary to solve current air transport problems.