Beige Book Report: Kansas City
August 5, 1980
Business activity in the Tenth District remains sluggish, but the rapid declines experienced during spring have not continued into summer. Retailers report that sales strengthened somewhat in June and July and that inventories are at satisfactory levels. Purchasing agents report that prices have stabilized, materials are easily obtainable, and inventory levels need to be reduced. The hot, dry weather has affected the agricultural sector by reducing expected crop yields and forcing increased cattle marketings. Bankers throughout most of the District report that loan demand remains weak, while deposits have been level or rising in recent months.
A majority of Tenth District retailers report that nominal sales for the year to date are greater than for the same period last year, due primarily to a rebound in sales during June and July. The recent surge in retail sales is due in large part to the strong impact the summer heat wave has had on the sale of such items as fans, air conditioners, refrigerators, and freezers, Most retailers indicate that their merchandise costs are continuing to increase, though at a moderate rate. Most of these cost increases are being passed on to consumers so that profit margins are being maintained.
Inventories are reported by most retailers as at satisfactory levels. Tight inventory control plus recent sales gains have kept inventories at very low levels, which retailers intend to maintain throughout the remainder of the year.
Over half the purchasing agents contacted report that input prices have risen by less than 10 per cent over the last 12 months. Most purchasing agents indicate that prices have recently stabilized, and that prices are expected to remain stable throughout the rest of the year. Almost all materials have become more easily obtainable.
Due to the slowdown in business activity, about half the purchasing agents contacted say that their materials inventories are too high, and that they plan to reduce future orders to compensate. The remainder plan to maintain cautiously low inventory levels. Most companies contacted are running at lower than normal production levels, and half the firms have laid off some workers in recent months.
Sustained hot, dry weather has placed substantial stress on spring seeded crops throughout the Tenth District. Reductions in yields are anticipated for dryland-and possibly for irrigated-crops. Estimates of corn and soybean production for 1980 continue to be reduced.
The continuing drought has caused pasture and range deterioration, leading cattlemen to increase marketings substantially in recent weeks. Yearlings and cull cows make up the bulk of the recent increase in marketings. The movement of cattle to market is expected to return to more normal levels in August, unless a continuation of the hot, dry weather causes further range deterioration.
Early marketings combined with slow herd buildup this year will probably keep beef supplies near current levels throughout 1981. Other meat production will probably decline due to cutbacks in production by both broiler and hog producers. All of these factors point toward a significant reduction in total meat supplies next year, putting upward pressure on meat prices.
Loan demand has recently remained flat or weakened somewhat at most Tenth District banks contacted this month. The exceptions are some banks in Wyoming and Oklahoma where energy-related loans remain buoyant. Consumer loans show the greatest weakness. Agricultural and real estate loans are also generally level to down, due in part to the heat and drought recently affecting the Midwest. All but one of the banks contacted lowered their prime or base lending rates in the last month. Some of the metropolitan area bankers currently have prime rates of 10 3/4 to 11 per cent, following the lead of the large money center banks. Others, however, are at 11 1/2 per cent. Base fees at some country banks remain relatively high, 14 to 16 per cent. Most bankers contacted expect further declines in the prime rate of 1 to 2 percentage points by yearend. Loan demand is generally anticipated level to up slightly over the next few months.
Deposits at Tenth District banks have been level or rising in recent months. Six-month and 2 1/2-year certificates show the greatest strength. Demand deposits, other small time deposits, and savings deposits also appear firm. Large CD's, however, have softened recently. Most bankers contacted expect flat deposit growth in the near future. A few bankers in Oklahoma and New Mexico are more optimistic due to their relatively robust regional economies. One banker expressed concern over a possible runoff next fall in the large number of high-yielding money market certificates he issued last spring. Other bankers, however, expect their spring MMC's to be rolled over at current interest rates.