Beige Book Report: Kansas City
December 10, 1975
Tenth District savings and loan associations report that they are satisfied with their current liquidity. Mortgage demand and deposit inflows have been steady or slightly increasing in recent months. A small decline in mortgage rates is expected before next spring. Mid-November auto sales in the Kansas City region were considerably stronger than in the same period in 1974. Farm prices have declined sharply in the last two months, and pork and beef supplies soon should be rising. Tenth District banks report a still weak, though improved, demand for loans.
Tenth District savings and loan associations reported either a steady or slightly increasing deposit inflow during the past two to three months. In general, they now consider their liquidity "about right where we would like it to be." Almost half of the respondents reported that mortgage demand was good or stable, while the other half noted a recent slackening in demand. Similarly, while some respondents stated that "we are making as many loans as we would like to make," other associations noted a (possibly seasonal) slackening in traffic.
Conventional mortgage rates generally ranged from 9 to 9 1/2 percent, though two associations quoted an 8 3/4-percent rate and one in St. Joseph, Missouri, an 8 1/2-percent minimum. Respondents were unanimous in stressing that they have encountered no resistance to present mortgage rates. On the other hand, no respondent expected rates to rise, and the great majority expected a decline to about 8 3/4 percent by the end of the first quarter of 1976. Considerable internal debate on rates and competitive pressure were often mentioned.
Comments by respondents indicated that the attitudes of businessmen toward the economy varied by geographic area. In Wyoming and New Mexico, businessmen were "all satisfied" and "think it's great." In Nebraska, the emphasis was on an excellent outlook for consumer spending during the holidays and in early 1976. "Guarded optimism" was expressed by one Missouri respondent and "gloom among builders" by two others. A concern about inflation and a confusion as to why it cannot be stopped was noted in Denver.
General Motors and Chrysler Corporation reported that in mid-November, car sales in the Kansas City area improved significantly over the same period last year. From November 10 to 20, GM noted a 52-percent increase in sales in the region compared to a 36-percent national gain. Similarly, Chrysler said its sales in the Kansas City region for the first 20 days of November rose 22 percent over the 1974 period. This compares with a 23 percent year-to-year national gain in the mid-month period.
After rising for six consecutive months, farm prices have declined sharply in the last two months. For the month ended November 15, the index of prices received by farmers was off about 4 percent due to lower prices for hogs, cattle, and most of the major grains. However, the index remained 2 percent above the year-earlier level.
Farm price trends in recent weeks have increased the likelihood that retail food prices may show greater stability in the period ahead. In view of the likely increase in hog farrowings in the period ahead, together with confirmed evidence of larger placements of cattle in feedlots, red meat production should soon be on an upward path. Although output will likely continue below year-earlier levels for several more months, the prospects for potentially larger meat supplies will probably dampen any tendency for livestock prices to return to the very high levels realized last summer.
Banks contacted in the December survey said that while loan demand continues weak, some improvement has occurred. Respondents also reported that local customer demand is much stronger than demand from national accounts. Seasonal increases were reported in retailing and leisure-activity loans, while a few banks reported some improvement in auto loans. Above-normal gains were reported in loans to cattle feeders. Bankers who were surveyed indicated that retailers expect a significant increase in real sales over their 1974 levels. Current prime rates range from 7 1/4 to 7 3/4 percent.