Beige Book Report: Kansas City
April 14, 1976
Buyers of materials for Tenth District manufacturers are generally optimistic about the economic outlook citing fairly stable prices, plentiful supplies, and growing demand for their finished goods. Nonresidential construction contractors, on the other hand, complain of being in a recession of their own. On the farm scene, bad weather has reduced the expected wheat yield, but farm prices have still declined because of expanding supplies of livestock. The demand for bank loans was weak in March, reflecting declines in borrowing both by businesses, national and local, and by consumers. Demand deposits continued to rise in March, but time deposits fell as banks ran off their large certificates of deposit.
Nonresidential construction business is souring, say some contractors. "Where there used to be maybe three bidders on a job, there are now sometimes 15, and they are going cheap, cheap—below our cost." Another observed, "At least the prices of our materials are stabilizing, except for plywood, which has gone up quite a bit already and will go up more soon." A third asked, "Why can't the government free up all that authorized spending and give us a break. We're in a recession."
Purchasing agents report still plentiful supplies and stable prices for most materials. Inventories are being built cautiously, if at all. Some buyers are quite concerned about the outlook for prices, while others expect relatively little change. Said one, "Things are getting a little tighter, and prices are making noises again." Among the noisemakers mentioned were polyethylene, paint pigment, certain metals, and other chemicals. "I don't expect all of the 8 percent increase in a large oil company's list for polyethylene to stick," remarked an agent. "We haven't been paying list anyway for the past few months," he said. A buyer for a farm supply business credits a warm winter and spring for a 30 percent increase in volume over last year. "The availability of fertilizer in unlimited quantities at two-thirds of last year's price has helped business too," he said.
Farm prices declined 1.5 percent for the month ended March 15, continuing a general downtrend that began last fall. Despite the sluggish behavior of farm prices over the last 6 months, due largely to expanding supplies, the average price level in March was 12 percent above a year ago. Hog and cattle prices have strengthened during the last 2 weeks and may continue to rise if supplies taper off somewhat. Still, recent reports suggest that red meat supplies—especially pork—will be expanding during the second half of 1976, which should keep a reasonably tight lid on livestock prices during that period. For the year as a whole, pork and beef output is expected to be about 2-3 percent above 1975 levels.
The District's wheat crop continues to be plagued with weather problems, although some precipitation has been received in the last month. It is expected that 1976 production levels in the District will fall considerably short of the 725 million bushels produced last year. A recent crop report on four states in the District indicated that output will be down about 20 percent from last year. However, the supply picture for the nation will be cushioned by probable increases in spring wheat production and a larger ending carryover of reserves from the 1975-1976 marketing year.
Tenth District bankers report that loan demand weakened in March. Business loans were down sharply as borrowing by both national and local customers declined. National accounts have turned to the open market for funds due to the favorable rate on commercial paper relative to the prime rate. The slowdown in local business borrowing appears to have reflected the strong internal liquidity at some local companies and their reluctance to build up inventories. One bank reported a rise in local business loan demand from gas-energy related businesses. Bankers also reported declines in consumer lending despite strong auto loan demand. Real estate and farm loans increased moderately.
Bankers reported strong demand deposit inflows. Savings deposits, especially those of individuals, continued to rise. Time deposits declined as banks continued to run off their large certificates of deposit due to slack loan demand.