Beige Book Report: Kansas City
June 30, 1981
Overview
The Tenth District's economy is showing little real
growth. Over the last year, current dollar retail sales increased
only slightly faster than retail prices. Purchasing agents report
input prices up about 10 per cent above June 1980 and expect price
increases to accelerate by year-end. Housing starts have increased
very little over last year's depressed levels, due to high mortgage
rates. Although the national winter wheat crop is expected to set a
new record, Tenth District crops have been substantially reduced by
frost and drought damage. Growth in loans and deposits at commercial
banks is slow. Prime lending rates are unchanged from last month and
range from 19 1/2 to 20 1/2 per cent.
Retail Trade
All Tenth District retailers report their current
dollar sales during January-May 1981 were in excess of 10 per cent
above those of January-May 1980. Double digit sales increases have
been reported throughout the District since March of this year. Most
Tenth District retailers indicate that merchandise cost increases
remain in the 6-8 per cent range. Retailers are maintaining full
inventory markups and gross profit margins by passing these cost
increases on to consumers.
Current stocks of merchandise at District retail stores are satisfactory relative to recent sales growth. However, most retailers expect sales to level off in the third quarter of this year. Inventory levels will, therefore, be watched closely in coming months. A majority of Tenth District retailers expect sales to pick up in the fourth quarter of 1981. Any buildup of inventories in the third quarter will then be used to ensure merchandise availability later in the year.
Purchasing Agents
Most purchasing agents report that input prices
are more than 10 per cent above year-ago levels. Although they
report a stabilizing trend in recent months, most agents feel that
price increases will accelerate before year-end. Lead times are
generally low throughout the District, and materials inventories
have been reduced to satisfactory levels. Overall, companies are
buying slightly more inputs than last year. About one-third report
laid-off workers and excess operating capacity.
Homebuilders
Homebuilders' Associations indicate that housing
starts are currently only slightly above last year's depressed
levels. Most builders expect starts to remain low until Autumn. Some
improvement is expected during the last quarter of 1981, depending
on the level of mortgage rates. There are no reports of excess
inventories of unsold homes in the District. Yet, home prices appear
to have risen very little, as high mortgage rates have restrained
demand. No problems with material availability currently exist. But
most builders note that if starts increase, some shortages will
occur as suppliers of materials incur start-up lags while bringing
idle capacity back into production.
Agriculture
A record U.S. winter wheat crop is projected for 1981
because of an increase in acres planted, despite frost and drought
damage during the growing season. Frost damage was worst in
northwestern and west central Kansas. Some areas of the Tenth
District report hard red winter wheat production to be as much as 40
per cent below average levels. The Kansas wheat crop may be reduced
as much as 56 million bushels. Colorado and Nebraska crops will
probably be reduced by 10 million bushels and 22 million bushels,
respectively. Winter wheat production in areas of Oklahoma may also
be lower than anticipated because of hail damage and drought
conditions during the growing season. The shortfalls in hard red
winter wheat yields are expected to be offset by improved prospects
for other portions of the wheat crop. Due to low prices, many
farmers are holding much of their wheat crop off the market,
anticipating higher prices later this year.
Range and pasture conditions throughout the District have improved due to recent rainfall, but additional moisture is necessary to maintain the rangeland in good condition.
Financial
Loan demand at commercial banks in the Tenth District is
weak to moderate in most categories. However, growth of commercial
and industrial loans continues strong in those regions experiencing
a boom in energy-related activities. Lending rates for prime
business customers are predominantly within a range of 19 1/2 to 20
1/2 per cent, with no appreciable change in the past month. Some of
the larger banks have adopted or are thinking of adopting a change
in the method for establishing lending rates that more nearly
reflects their marginal cost of funds.
Growth of deposits at most Tenth District banks is weak or moderate and concentrated in 6-month money market certificates. A number of banks are offering retail RP's to attract funds, due in part to intense competition from money market mutual funds. Several other banks are considering offering retail RP's in the near future.