Beige Book Report: Kansas City
September 30, 1981
Summary
The Tenth District economy is showing signs of weakening,
although no clear trend is evident. The primary indicators of
slippage are in retail sales and housing, where reports of slowing
activity and expressions of concern about the outlook have increased
from a few weeks ago. Nevertheless, parts of the Tenth District
continue to enjoy very strong economic activity which is primarily
energy-related. These differences in business conditions across the
District show up clearly in the growth rates of bank deposits and in
loan demand. All-savers certificates, bankers also say, will not
have any impact on the interest rates they charge. Despite good
crops and some improvement in cattle prices, farmers continue to
have trouble servicing their debt.
Retail Sales
Most retailers are satisfied with their current stocks
of merchandise, but some are concerned that sales may weaken soon,
with a resulting excess of inventories. Retail trade has picked up
in some parts of the Tenth District in recent weeks, but slowed in
others; sales of new cars and other durable goods continue to be
disappointing.
Purchasing Agents
The aircraft and electronics industry
representatives report some difficulties obtaining certain items,
but buyers for other industries say supplies are plentiful. Agents
report that the prices of industrial inputs average about 7 percent
above those of a year ago.
Homebuilders and Savings and Loans
Sales of new homes continue to
be very sluggish. Housing starts are down almost everywhere in the
District including the energy-related boom towns. Homebuilders
believe that they will not see any improvement in their business
until interest rates come down. Current mortgage rates average near
17 percent on adjustable rate loans. Savings and loan institutions
expect the all-savers certificates to improve their inflows, which
have been deteriorating.
Agriculture
Cattle producers continue to experience financial
difficulties. Cattle feeders who took advantage of recent increases
in fed cattle futures prices can anticipate marginal profits. Cow-
calf operators appear to be retaining more calves this year than
last due to favorable range and pasture conditions. The September
Cattle-on-Feed report indicates increased marketings and reduced
placements compared to one year ago, which should mean continued
strength in fed cattle prices during coming months. An expected
record corn crop should keep feed costs down and improve profit
margins. The financial position of hog producers appears to be
holding steady according to District bankers. The September Hogs-
and-Pigs report suggests a larger supply of pork during autumn
months than had been expected, so some moderating in hog prices may
result.
Crop condition reports from District bankers are consistent with USDA estimates of a record corn crop and near record soybean crop. Because of late plantings, both corn and soybeans are still susceptible to a hard, early frost in some areas. Due to the depressing effect of large crop supplies on market prices, more farmers are expected to participate in government grain reserve programs this year.
Financial Developments
Reports on loan demand at Tenth District
banks are mixed this month. Banks in areas where economic activity
is robust due to energy-related investment spending report strong
demand for commercial and industrial, commercial construction, and
consumer loans. Banks in other areas of the Tenth District report
flat-to-weaker growth in these loan categories. Agricultural and
residential real estate loan demand remains weak. Prime lending
rates, which range from 19 to 20 1/2 percent, have declined 25 to
100 basis points in recent weeks.
Deposit growth has increased moderately in areas of the Tenth District affected by energy-related investment spending and has been flat in other parts of the District. In all areas of the Tenth District, growth in deposits is concentrated in large CD's and money market and small saver certificates; little or no growth is occurring in other deposit categories. A few banks are paying less than the ceiling rate on small saver certificates.
The majority of bankers do not expect the volume of all-savers certificates to be substantial. They think the bulk of these funds will come from current deposits, especially money market certificates. Bank respondents expect the all-saver certificates to marginally decrease their aggregate cost of funds, and to have almost no impact on lending rates, including mortgage rates.