Beige Book Report: Kansas City
December 14, 1977
Tenth District retailers report moderately good fourth quarter sales, continuing the improvement seen in the first 9 months of the year. Several merchants, however, mention the possibility of a need for inventory cutting in the period ahead. Auto dealers, on the other hand, have relatively low inventories of 1977 cars and also report good sales for the 1978 model year. On the agricultural front, wheat and corn prices have exhibited unexpected price strength, despite the large production of these grains. Tenth District bankers report unseasonably strong loan demand, especially for commercial, industrial, and consumer installment loans, although agricultural loan demand is relatively unchanged.
Larger retailers in the Tenth District appear to be cautiously optimistic about both expected total sales for 1977 and prospects for 1978. In almost all cases, results for the final 3 months of the year are expected to exceed the same period last year by about the same percentage recorded for the first 9 months of 1977. In the Denver area, however, a few merchants report slower than expected December sales.
Reports on the actual magnitude of sales improvement and on the inventory situation are varied. Projected sales increases for all of 1977 range from a low of 6-7 per cent to a high of 20 per cent over 1976. No store reported any unusual problems in getting goods from suppliers, but several indicated that their inventories might be too high. Several respondents had difficulty making comparisons with 1976 because one or more new branch stores have been opened in the past year.
Domestic automobile dealers in major cities of the Tenth District report normal or somewhat lower than normal inventory levels for 1977 model cars. The 1978 model cars appear to be selling quite well, with midsize and small car sales outpacing large car sales. Generally, cars are being sold with many accessories, with this especially true for larger cars. Used cars are selling very well, possibly due to the price increases on new cars. It also appears that the demand for smaller used cars is particularly high. Foreign car dealers seem to be having difficulty in getting cars from manufacturers, and most have very low inventories of 1978 models. Generally, the 1978 model year is expected to be better than 1977, although about a third of the dealers, especially those in Denver, indicated it was too early to tell and felt that sales might be off somewhat.
Prices received by farmers for wheat and corn exhibited counter-seasonal increases during late summer and fall this year. Despite the prospects for large U.S. production, wheat and corn futures prices trended upward from late August to mid-November. Since then, futures prices have declined somewhat.
Rumors in the grain trade of increased Russian purchases no doubt account for part of the price strength. Continued strength will be dependent upon larger placements of grain under Commodity Credit loan—thus reducing free market supplies—and continued favorable export news. Given the large supplies of grain on hand, it is likely that wheat and corn prices may peak earlier than usual in this marketing year—if they have not already done so.
Tenth District bankers report that loan demand in November was moderately to significantly stronger than usual for this time of the year, with areas of strength being commercial and industrial loans, and consumer installment loans. The strength in commercial and industrial loans is related primarily to construction of commercial and residential property, with single-family homes and condominiums in ski resort areas being of major importance. Mortgage loans, either placed directly or through mortgage brokers, are, nonetheless, reported as normal or somewhat weaker than normal for this time of the year. The strength in consumer installment loans appears to be concentrated primarily in the areas of new auto loans and revolving credit for bank charge cards.
Agricultural loans are reported as relatively unchanged in November, although most bankers consider this normal as crops are brought to market. Several bankers indicate that the liquidity position of their smaller respondents has so improved that these respondents are repurchasing agricultural loans from them.
Time and savings deposits as well as small CD's at most banks were either unchanged or declining in November. A few bankers attribute the decline in small CD's to stiffening competition with savings and loan institutions. Large negotiable CD's, on the other hand, are reported by most bankers as either steady or increasing.
Several bankers expect that, as a consequence of insufficient overall deposit growth, their banks will have to purchase funds (either negotiable CD's or Fed funds) in order to keep pace with loan demand. Some of the bankers note, however, that the purchase of funds is normal for their bank at this time of the year.