Beige Book Report: Kansas City
March 12, 1975
Interviews and local newspaper reports point to some improvement in the Tenth District new housing industry. Tenth District builders, home builders associations, and savings and loan institutions all indicate a degree of cautious optimism for 1975. Employment has improved at automobile manufacturing plants in the Kansas City area. Retail sales remain soft, while inventory levels appear to have stabilized. Winter wheat prospects are still regarded as good, although potentially damaging dry conditions do exist in some areas. The pronounced decline in farm product prices could pose a serious financial problem for some producers. Total loan volume at Tenth District Banks has declined in recent weeks, while deposits have moved slightly upward.
Savings and loan associations report a fairly heavy inflow of funds in January and February, mainly into passbook accounts. One officer notes that, while he does not foresee any large drain-off of funds, "the 'smart' money is waiting for some higher rate that seems inevitable when the Government has to look for financing for the rebate program". Despite this fear, mortgage rates are softening and money is becoming available for the qualified buyer. A Kansas City official comments that "raising the Missouri usury ceiling (from 8 percent to 10 percent) did not have the immediate effect we thought it would, but sellers seem to be finding out they can now sell and not be charged points".
Savings and loan officials view the construction picture as rather cloudy. One man in Oklahoma City notes that construction has been slow but is picking up, with most activity in single-family homes. Apartment building has dried up, however. An interviewee in Omaha reports that the main market is in old houses and thinks this may be due to the energy scare, with people wanting to live near the center of town. Representatives of home builders associations and builders themselves stress that while current sales are small by past standards, they do appear to be on an improving trend, and this is encouraging. Low inventories were widely reported, a situation achieved by design due to uncertainty. One builder in metropolitan Kansas City notes, however, that he is holding back on building at this time because some 1,500 newer resale homes will be coming on the market soon due to the Richards-Gebaur Air Base transfer.
The president of a Nebraska home builders association comments that, while labor and materials costs have stabilized, "we builders worry about what will happen once the economy gets going again". A major Kansas City builder states: "We are quite optimistic about 1975, judging from our activity and work load so far this year. We realize it is early in the year to predict, but that is really a plus for us in that conditions are easing and we have most of the year to benefit from it."
Employment at the three automobile manufacturing plants in the Kansas City area has improved significantly in the past two months. The Ford Claycomo plant has recently returned to full production. While the two General Motors plants continue to have workers on indefinite layoff, this number is smaller than was the case in January.
Among department store retailers, sales have continued to soften since January 1, although some strength has been seen in the past week. Inventory levels now appear to be generally stabilized, with little need seen to cut back further from current levels.
Although the prospects for the District's winter wheat crop are still regarded as good, some concern is being expressed about the very dry conditions that exist from central Kansas and Nebraska westward into Colorado. A continuing deterioration of farm prices could pose serious financial problems for District farmers faced with steadily advancing production costs. During the past year, crop prices have declined 14 percent while meat animal prices have fallen 28 percent. A reversal of the present price trends is not likely in the near future, according to current projections. Production of most 1975 crops is expected to exceed last year's levels, and livestock prices are expected to remain in a depressed state during the coming months as the oversupply of cattle is worked down.
A survey of large Tenth District banks reveals a further decline in total loans outstanding during recent weeks. This change contrasts with an expected seasonal increase and is indicative of the weakness reported in business and consumer loans. The less than seasonal increase in commercial and industrial loans is due, in part, to desired reductions in inventories by firms which, in turn, also reduce new loan requests. Consumer installment credit continues to fall in response to increases in unemployment and to postponement of durables purchases. Nebraska banks, however, report that automobile rebates have raised consumer loan demand to a level comparable to a year earlier. Farm and real estate loans are relatively stable, with grain and fertilizer loans showing some growth among Nebraska banks. On the supply side, several banks stated that their loan accommodations remain highly selective.
Deposits moved slightly upward over the last few weeks, with strength in demand deposits and consumer time deposits offsetting weakness in large negotiable certificates of deposits (CDs). The large inflow of consumer-type time and savings deposits reported by many banks has not reduced their efforts to solicit these deposits, which continue to yield the maximum allowable rates. Large negotiable CDs declined sharply, as banks adjusted their offering rates relative to reduced yields on most short-term financial assets. A withdrawal of United States Government demand deposits prompted several Oklahoma banks to liquidate Treasury securities pledged against such deposits. Many banks that are experiencing a net inflow of deposits but a reduction in their loan portfolios are taking the opportunity to augment their cash positions.