Beige Book Report: Kansas City
August 10, 1977
Purchasing managers at Tenth District manufacturing firms generally expect continuing strong sales to yearend. Nearly all respondents report satisfactory inventory levels, with no drastic adjustments planned. No problems of unavailability of inputs or lengthening of lead times are evident. Prices of materials and other inputs are generally reported to be rising in the 5 per cent to 8 per cent per year range. Farm prices, however, declined for the second consecutive month, with declines for grains more than offsetting increases for livestock. Both loan demand and deposit growth are reported to be strong at Tenth District commercial banks.
Officers and purchasing managers of Tenth District manufacturing firms all report no problems with the availability of any items that they purchase. With very few exceptions, they also report no lengthening of lead times for purchased inputs. Exceptions identified are for certain chemicals—caustic soda, chlorine, and hydrochloric acid—and for some metal castings.
Prices of materials and other inputs are reported by most respondents to be rising within a range of 5 per cent to 8 per cent per year, with users of steel and of petrochemicals reporting higher percentage increases. A producer of grain bins and metal buildings estimates that prices for their inputs have risen about 10 or 11 per cent in the last year, and indicates that they intend to pass most of the increase on to their customers. A major agricultural chemicals producer reports, however, that they are finding it difficult to pass on their higher cost increases because the cash flow problems of farmers are leading them to restrict purchases of pesticides. A large producer of fabricated rubber products notes very large recent increases in prices of petrochemicals occurring in spite of what he perceives as excess capacity among petrochemical suppliers. A major manufacturer of luggage tells of price increases for polystyrene, magnesium, and rayon, which he attributes partly to monopoly power in those industries. He also warns of the possibility of unavailability of aluminum becoming a significant bottleneck in the economy.
About two-thirds of the purchasing managers surveyed report that their inventories are "about right," "normal," or "on target," and thus no adjustments in inventories are planned. The remaining respondents are divided among those reporting inventories "too high" and those reporting "too low." In no instance does it appear that drastic adjustments in inventories are planned. For example, a gradual working down of stocks, or an expected increase in sales, is expected to reduce any excess in inventories.
Continuing strong sales to yearend are expected by nearly all of the firms surveyed, the major exception being those firms that supply the heavy construction industry. Considerable variation exists among those firms expecting further sales gains. Manufacturers of private aircraft expect their sales to continue to grow especially rapidly, as do producers of metal grain bins. A luggage producer expects sales to be "good but not sensational," and a national supplier of rubber hoses and belting sees some easing of sales in the second half after a "super" first half.
Prices received by farmers decreased 2 per cent in the month ended July 15, marking the second consecutive monthly decline. Although partially off-set by higher prices for cattle and hogs, depressed grain prices, due to large carryovers and good-to-excellent crops and crop prospects, are impeding the growth of farmers incomes throughout the District. In addition, credit conditions remain tight as cash flow problems continue for many farmers. Although farm loan demand is strong in the Tenth District, many rural banks are reporting fewer loanable funds available than a year ago.
With the abundance of grains resulting in lower feed prices, farrowing intentions of hog producers show a marked increase. In the major hog-producing states of the District, farrowing intentions for the last half of 1977 are 1 to 14 per cent above last year. This suggests the possibility of some reduction in pork prices in early 1978. However, the calf crop—down nationally 3 per cent from last year—also appears to be an average of 1 to 2 per cent below last year's levels for the District states. Thus, even though placements of cattle on feedlots are expected to increase, a decline in nonfed cattle is likely to restrict total production. As a result, beef prices are likely to remain near their present levels (or perhaps to rise moderately) for the coming year.
Most Tenth District bankers surveyed report that loan demand remains quite brisk. In response to the strong loan demand and the recent increases in market interest rates, a number of banks have increased lending rates in the past few weeks. A few bankers anticipate further increases in lending rates to some of their loan customers, especially if other interest rates continue to climb.
With few exceptions, survey respondents indicate that overall deposit growth remains strong. Few bankers believe that inflows into time and savings accounts have been significantly affected by recent increases in interest rates. Several say, however, that they anticipate a future slowdown in time and savings deposit growth if money market rates continue to increase. Some bankers report that they will compete more aggressively for CD's if the expected slowdown in the growth of time and savings deposits results in a shortage of funds.