Beige Book Report: Kansas City
January 13, 1977
Retail sales during the Christmas season were reported as not overly strong in the Tenth District, with the exception of the Denver area. Reports from several larger District cities showed a generally favorable view of the sales of 1977 autos to date, with the outlook for the next several months fairly optimistic. A good deal of the concern expressed last month over the lack of moisture and snow cover for the District's winter wheat crop has been allayed by a very extensive snowfall. Regarding scattered reports of increasing interest rates on farm loans, contacts with two dozen agricultural banks in the Tenth District showed a variable pattern of change with rates being charged averaging nearly the same as 3 months earlier. Tenth District bankers presented a mixed picture for business loan demand, with some banks reporting strong loan demand and others only seasonal increases. While banks have been considering cuts in offering rates on consumer savings deposits or consumer CD's, only two institutions have, thus far, reduced rates selectively by one-fourth per cent. At the same time, there were no outright instances, from among a number of savings and loans contacted, of reductions in rates paid on passbook deposits. However, in several cases, it was reported that issuance of 7 3/4 and 7 1/2 CD's had been discontinued and that possible future rate reductions were under consideration.
Telephone calls to a number of major retailers in the Tenth District regarding sales over the recent Christmas season elicited generally restrained responses, with the exception of the Denver area where such terms as "outstanding" and "fantastic" were used to describe the December sales picture. Elsewhere, sales were reported to be up over the period last year, but gains were not seen as exceptional or up to some of the more optimistic projections. Most respondents indicated that their inventories were at, or close to, desired levels, and all respondents reported no recent change in prices, either from their vendors or to their customers. District auto dealers reported a generally favorable response to date on the part of the public toward the 1977 models. Intermediates and full-size cars are in strongest demand and shortest supply, and the outlook for sales over the next several months appears to be optimistic.
With the exception of southern Oklahoma, the District's winter wheat crop is largely covered by a protective blanket of snow which fell very recently. In addition to providing badly needed moisture, the snow will offer protection to the dormant wheat from wind erosion and winterkill.
Following scattered reports about increasing interest rates on farm loans, a telephone survey involving 24 District agricultural banks was conducted to determine both the extent to which they are loaned up as well as their most common interest rates on four different types of farm loans. Loan to deposit ratios of the respondents ranged from 12 to 80 per cent, with a mean of 58 per cent (little changed from October 1). Interest rates ranged from 8 per cent on feeder cattle and other operating loans to 11 per cent on intermediate- and long-term loans. In the last 3 months, 10 banks increased rates on at least one kind of agricultural loan by 25 to 100 basis points. At the same time, seven banks lowered interest rates on at least one kind of farm loan between 25 and 100 basis points. On balance, interest rates being charged by the respondents averaged nearly the same as 3 months earlier.
Tenth District bankers contacted in January presented a mixed picture of changes in business loan demand. Some banks reported strong gains in business loan demand while others said that loan increases in December were only seasonal. Several of the banks reporting strong gains had increases in all areas of business loan demand, while one reported that strength resulted primarily from agribusiness overlines at smaller banks. Strong gains in consumer installment lending were recorded, with above seasonal gains in bank card use noted by most banks. Agricultural loans continued to be a source of strength in overall loan demand at the larger Tenth District banks. Loans for grain storage have been particularly strong although new cattle loans are at a low level.
With the fall of short-term market interest rates below passbook rates, most banks have been considering cuts in offering rates on consumer savings deposits or consumer CD's. However, only two institutions have reduced rates so far—one reduced by one-fourth per cent the offering rate on certificates with maturities from 30 days to 2 years, while another cut by one-fourth per cent the rate on 90-day certificates. One bank plans to reintroduce service charges on passbook accounts and another is putting a cap on the amount which can be placed in a consumer CD.
Savings and loans throughout the Tenth District were contacted, and none of them reported any outright reductions in interest rates paid on passbook deposits. However, in several cases, issuance of 7 3/4 and 7 1/2 CD's had been discontinued. In addition, several savings and loans were considering taking such an action in the near future, or lowering the rate on deposits, if competitive conditions permitted. There were a number of reports of recent reductions in mortgage rates and terms, in some instances to an 8 1/2-8 3/4 per cent range on 75 per cent to 80 per cent contracts. Further possible reductions were under consideration, depending upon the emerging competitive situation.