Beige Book Report: Kansas City
April 12, 1978
Current and anticipated sales are generally good, inventory levels are mostly satisfactory, and delivery times for items purchased are not lengthening, according to purchasing agents at a number of leading Tenth District firms. Prices of materials and other inputs are rising in the 5 percent to 6 percent range for most buyers, but several report increases of 6 percent to 8 percent. Spring planting of feed grains is being delayed in the District by wet soil conditions. Market prices for grain have strengthened, partly due to new farm program measures. Demand is strong for all types of loans at Tenth District commercial banks. Deposit growth is slack, but bankers expect to find funds from nondeposit sources to meet loan demand.
A large majority of Tenth District purchasing agents surveyed report no significant recent changes in delivery times or availability of items purchased. The greatest exception was in the case of steel, with several respondents noting some lengthening of lead times. Many firms experienced slight delays in deliveries during the worst of the winter weather, but it is no longer a problem for them. Reports of any large impact on production from materials shortages and transportion problems, or of back-orders and lost sales, were few in number.
Most respondents report prices of their materials and other inputs to be rising in the 5 percent to 6 percent range, but several note increases of 6 percent to 8 percent. Expectations of price increases for the rest of the year appear to center on the 6 percent to 8 percent range.
Only a very few purchasing managers stated that their materials inventories were other than satisfactory. A paint manufacturer reported heavy inventories due to sales being weaker than expected. Other firms with slightly high or slightly low inventory positions expect to take no special action to adjust them.
Satisfactory inventory levels, or the lack of special efforts to adjust for small discrepancies therefrom, probably reflect the generally good sales picture—both current and anticipated—for most firms surveyed. Exceptions to the generally good sales picture include the paint manufacturer already mentioned, several firms whose markets are in the agribusiness sector, and at least one steel firm which is feeling the effects of weakness in private investment in nonresidential structures. A manufacturer of private aircraft notes that its sales abroad are sluggish in spite of the fall in price of their planes because of the weaker dollar. One respondent is concerned that the "constant refrain" he hears from businessmen—"that the fourth quarter will be bad and 1979 will be lousy"—may become a self-fulfilling prophecy. He believes the pessimism is unwarranted, certainly for his firm and elsewhere as well.
Melting snow and recent rainfall have delayed spring fieldwork throughout much of the Tenth District. Barley and oat seeding is reported to be about 30 percent complete in the District, although 60 percent is considered normal for this time of year. Moreover, field preparations for corn and soybeans are as much as 4 weeks behind schedule in some areas. Generally, if corn is not planted by May 10, large yield losses are frequently experienced. Although they can perform field operations quickly, farmers are likely to reduce their feedgrain planting and increase the production of other crops, particularly soybeans, if weather conditions do not soon improve.
Farm program measures announced recently by the Department of Agriculture are expected to boost 1978 net farm income $3-4 billion above the 1977 level of $20.4 billion, according to official reports. Farmers will be allowed to graze cattle on some of their winter wheat and to take additional feedgrain and cotton cropland out of production, for which Government payments will be made. Higher target prices for wheat are also being considered. Partly as a result of these measures, market prices for grains have strengthened. These developments, coupled with any new legislation that Congress may pass, are likely to keep upward pressures on retail food prices for the rest of 1978.
Tenth District bankers contacted report that demand has been very strong for all types of loans, particularly agriculture and agribusiness loans. Several bankers report that elevator companies are borrowing heavily because railcar shortages have delayed shipment and sale of grain. Cattle loans have increased at most banks, and so has lending to country banks by correspondents for agricultural financing. Loans for natural resource development and to energy-related industries continue strong. Real estate and construction loans have increased sharply, and auto loans are picking up in most parts of the District.
Deposit growth is slack at most banks, and many bankers report moderate outflows in consumer time and savings deposits. Although most bankers expect to have sufficient funds to meet loan demand in the near term, they are planning to purchase funds in the money market and to arrange financing through large correspondent banks to meet the anticipated credit demands; some plan to borrow from the Federal Reserve under the seasonal borrowing privilege. Large banks contacted report that many country banks are already heavily loaned up.