Beige Book Report: Kansas City
January 28, 1981
Overview
Business conditions in the Tenth District continue to show
little strength. Softness in retail sales is expected to continue
for a while, and the short-term outlook for auto sales is viewed as
poor. Inventories of retailers and manufacturers are higher than
desired. The winter wheat crop is in some danger due to lack of
moisture. Loan demand at commercial banks has weakened recently,
with loans to the energy industry an exception.
Retail Sales and Inventories
Most Tenth District retailers indicate
that total dollar sales in 1980 were 5-10 per cent greater than in
1979. But sales in December 1980 and January 1981 have not shown
that much strength in most areas of the District. Sales have been
strongest in durable goods and higher priced items, primarily
quality apparel. Most retailers expect the current softness of total
sales to continue, at least through the first and second quarters.
A majority of retailers continue to report negligible merchandise cost increases in recent months are reducing upward pressure on retail prices. Most retailers note recent downward pressure on profit margins because of increases in advertising expenditures, utility bills, and other operational expenses.
The recent weakness in total dollar sales leaves most retailers in the Tenth District with inventory levels that are slightly higher than desirable. However, none of the retailers report any plans for extra clearance sales in January or February. All retailers expect to continue past practices of tightly controlling inventory levels, through the first half of 1981.
Manufacturers Inventories and Input Prices
Over half the purchasing
agents contacted report that input prices are above their year-ago
levels by 10 per cent or less, but with increases as great or
greater in recent months than in most of 1980. Lead times on
deliveries are satisfactory throughout the District. There has been
some undesired accumulation of materials inventories, but most
companies are satisfied with their inventory levels. New purchase
orders for most companies are down or unchanged from last year.
About one-half of the companies contacted report excess operating
capacity and laid off workers.
Automobile Sales
District Automobile Dealers' Associations report
very sluggish sales and a poor short-term outlook, with high
interest rates a major factor. The automakers' finance companies,
now charging about 15-1/2 per cent, are the primary source of
customer financing. Excess inventories are causing problems for many
dealers, especially since they must pay over 20 per cent interest to
finance those inventories. Although few dealers have recently gone
out of business, more closings are anticipated before spring.
Housing Finance
Savings and Loan Association spokesmen report that
savings inflows were somewhat higher in 1980 than in 1979. Most are
mildly optimistic about inflows in the near future, mainly because
of the introduction of NOW accounts. Demand for residential
mortgages continues to be very depressed, and the outlook is bleak.
Conventional mortgage rates are in the 14-15 per cent range, and are
expected to remain there through early 1981.
Banking Developments
Loan demand weakened at most Tenth District
banks contacted this month as borrowers reacted to the high level of
interest rates. Only commercial and industrial loans exhibited
strength, and much of this activity was concentrated in the energy
industry in Oklahoma. Real estate, agriculture, and consumer loans
are depressed across the District. Most large banks report a 20 per
cent prime rate, up from 18 1/2 per cent in December. At the same
time there were scattered reports of increased price competition in
response to the weaker loan demand.
Deposits at Tenth District banks were generally up during the past month with much of the increase in interest bearing deposits. Money market certificates show strong growth in response to the rise in yields. At the same time, some of the larger banks are beginning to run off large CD's. All banks contacted began offering NOW's and most report consumer response equal to or greater than projected. Most bankers feel that the bulk of the increase in NOW's is coming from existing demand deposits and from conversion of ATS accounts. Little new money is being attracted to these accounts because of relatively high minimum balances and service charges. Banks report some net outflow of funds in those areas with strong competition from savings institutions.
Agriculture
The District winter wheat crop appears to be in
reasonably good condition, despite a lack of snow cover which is
needed to protect the wheat seedlings from wind damage and extreme
temperatures during February and March. Additional moisture is
necessary within the next month to prevent deterioration of the
crop. Cattle producers in the Tenth District, many of whom only
broke even during 1980, are having some difficulties repaying
current loans. Area bankers are requesting that these producers seek
partial or total funding for 1981 from the Farmers' Home
Administration. Producers in Nebraska have been suffering the most
because cattle prices there are lower than elsewhere in the
District. Interest rates on short and intermediate term loans at
agricultural banks in the District are in the 17 to 18 per cent
range. As a result loan demand is presently lower than at any time
since the start of the Kansas City Federal Reserve Bank's
agricultural credit survey in 1976.