Beige Book Report: Kansas City
November 11, 1970
The economy of the Tenth District is showing signs of sluggish growth following its decline earlier in the year. Attitudes and expectations remain cautious, however, as a result of several factors, such as strikes; recent sharp declines in farm prices; the existence of some pockets of especially high unemployment; and a continuing sense of concern and uneasiness about the state of the national economy. Business loan demand at large District banks has continued to ease moderately. However, since some of the large banks have been repurchasing loans from their parent holding companies, the moderate weakness reported in business loan figures may not fully reflect the extent of the softening in demand.
Although employment in the Tenth District has been adversely affected by current economic conditions, the impact has not been as severe as in other areas of the country. Expanding tourism and increased interest in the region's power resources (uranium, coal, and oil) have helped to moderate unemployment in the District's mountain states and in Oklahoma. Employment in the more industrialized states of Missouri and Kansas has been harder hit by the economic slump. However, the earlier decline in total District manufacturing employment has tapered off, and was reversed in August. The employment outlook for the remainder of 1970 (and into 1971) appears hopeful, as reports indicate few, if any, further layoffs are anticipated. Optimism concerning the overall employment picture is tempered somewhat by the continuing cautious attitude displayed by both consumers and businessmen, and by the continuation of the automobile strike.
The total value of residential construction contract awards in the District has shown a sharp pick-up recently. Yet, savings and loan associations in some areas report that their supply of funds is now growing faster than the demand for them. Despite settlement of the construction strike in the Kansas City area, there is little evidence of a resurgence of demand for funds to finance home-building. There is apparently much confusion about the contract settlements, with many potential home buyers not realizing that the large wage increases will come over a period of 2 1/2 years.
The Kansas City construction strike, which finally came to an end
after 201 days, serves as a good illustration of the
cost-push
pressures that prevail in the economy. Three laborers' unions
ratified settlements on August 31 that increased their hourly
compensation from $4.01 to about $8.16 an hour, to be attained by
April 1, 1973. The bricklayers settled on September 11 for an
increase of about $4.50 an hour over their previous rate of about
$5.62 an hour, for a total of about $10.12 an hour. On October 13,
the cement masons settled for a $4.57 increase which will result in
an hourly compensation of $9.64 by the April 1, 1973, date; and the
lathers ratified an agreement on October 18 calling for an increase
of $5.02 an hour to a final figure of $9.55 an hour. The one bright
spot is that all the settlements led to contracts with a common
expiration date of April 1, 1974—an important element in the
strategy for future labor peace in the area's construction industry.
Personal income growth in the District has been slow because of declines in the manufacturing and construction industries, and because of weakness in farm proprietors' income—which the recent sharp declines in farm prices are likely to extend through the rest of the year. As a result of all these factors, retail sales are showing very little strength.
The relatively slow growth in the District's economy appears to be reflected in the moderate weakening in business loan demand at large District banks. District banks so far have had very few loans repaid by firms that have sold bonds in the market. More repayments are expected in the future, though, particularly if conditions in the bond market improve and permit regional businesses to acquire long-term funds. Most of the large banks do not look for an improvement in business loan demand in the near future; on the other hand, very few foresee a sharp decline.
Among other loan categories, the demand for single-family residential mortgages is fairly weak. Consumer loan demand also is somewhat weak. In particular, one bank reports that it has been unable to build up the amount of outstanding loans under its credit card program. In contrast, the demand for construction loans and commercial mortgages is strong at a number of the large banks.
At the smaller District banks there are also indications that loan demand is weak. One large Oklahoma City bank reports that it has no participation loans from its correspondents. A large Denver bank reports that a surprisingly large amount of Federal funds have been available from its correspondents.
There is a general consensus among the large District banks, based partly on their own conditions and partly on their assessments of the positions of money market banks, that the prime rate will be reduced in the near future—probably before yearend. In view of the high cost of obtaining funds, some bankers indicate that they may not extend a prime rate reduction to as many borrowers as in the past.