November 12, 1980
Overview
Economic activity in the Kansas City District remains
sluggish. Purchasing agents report excess plant capacity and workers
still on layoffs. Auto dealers report new models to be selling
moderately well, but homebuilders report construction activity has
slowed dramatically. Retailers report continued sluggishness in
sales, although their expectations are for improvements in coming
months. Corn and soybean yields are reported lower-than-normal
because of drought conditions earlier this summer. Except for those
regions involved in energy-related industries, both loan demand and
deposit growth are reported by Tenth District banks to have been
flat-to- lightly improved over the past month.
Manufacturers' Inventories and Input Prices
Purchasing agents
contacted report that the growth in input prices has slowed in
recent months, but that they expect renewed acceleration over the
coming months. Most materials are in adequate supply and are
expected to remain so throughout the winter. Most District firms are
maintaining lean inventories and are ordering smaller quantities of
materials than last year. Almost half the firms contacted have
excess plant capacity, and still have some workers on layoff.
Automobile Sales
Automobile Dealers Associations report that the
new models are selling moderately well and are expected to continue
to do so in the coming months. High interest rates are inducing
dealers to hold lower stocks which, along with tight manufacturer
allocations, has caused some bottlenecks in the supply of some
popular new models.
Homebuilding and Home Finance
Homebuilders Associations indicate
that housing starts have stagnated after a brief upturn last summer.
Prices of new homes are rising only slightly and excess inventories
of unsold homes have not yet developed. High interest rates are
expected to curtail sales in the near future, however. Savings and
Loan Associations report savings inflows to have been quite strong
recently. Demand for mortgage funds has slackened considerably since
mortgage rates have again risen above 12 per cent. It is feared that
mortgage rates, currently at 13 to 13 1/2 per cent, may rise
further.
Retail Sales and Inventories
The majority of Tenth District
retailers contacted indicate nominal retail sales since August to
have been only slightly better than during the same period a year
ago. Current dollar sales have apparently weakened noticeably in
automotive and apparel merchandise while durable goods sales have
shown slight improvement in the most recent months of this year.
Merchandise costs have reportedly slowed in recent months. During
the August-October period, most retailers have maintained the same
markup over costs as in the past, but have had difficulties
maintaining profit margins at past levels because of increased
expenditures for promotional advertising and promotional price
cutting. Most retailers report existing merchandise inventories to
be excessive, primarily because of the weakness in sales. However,
inventory levels are not being significantly trimmed because sales
are expected to strengthen as the Christmas season approaches.
Agriculture
Harvesting of corn and soybeans in the Tenth District
has been virtually completed. Most states report lower yields on
both crops, due primarily to the drought conditions earlier this
summer. In many areas of excellent cropland, yields fell 10 to 12
per cent below normal years. The number of farmers not expected to
be credit worthy during 1981 is about twice what is usual. However,
as a result of drought and hail this summer, many area farmers are
eligible for low cost emergency loans from the Farmers Home
Administration which may allow many to regain some financial
stability. The winter wheat crop is in good condition throughout
most of the District, although planted acreage is reported as lower-
than-normal.
Banking Developments
Loan demand is reported flat-to-slightly
higher at most Tenth District banks contacted this month. Exceptions
are some banks in Wyoming and Oklahoma where energy-related loans
continued to show significant strength. Demand for real estate loans
has been mixed recently, with some bankers in Oklahoma, Wyoming, and
New Mexico reporting continued moderate lending for commercial
properties. Some of the banks contacted report weakening in consumer
loans primarily due to automobile credit. Rural banks report slight
declines in agricultural loans. All of the banks contacted have
raised their prime or base lending rates within the past month. Some
of the metropolitan area bankers currently have prime rates of 14
1/2 to 15 per cent, following the lead of large money center banks.
Base fees at some country banks have recently increased to 16 1/2
per cent.
Deposits at Tenth District banks contacted have been flat-to-significantly higher this past month. Regions involved in energy- related industries have recorded the greatest increases. Demand deposits are particularly strong in these areas, as are large CD's and money market certificates. In other regions of the Tenth District, the growth of deposits has been flat-to-slightly higher reflecting the trends in local loan demand.