Beige Book Report: Kansas City
March 23, 1982
Overview
Generally weak business conditions in the Tenth District
are reflected in generally flat loan demand at commercial banks.
Retail sales show little real growth. Inventories remain at low but
satisfactory levels. Depressed conditions in the housing sector are
reflected in continued weakness in the savings and loan industry. A
large winter wheat crop is anticipated, but farmers continue to
experience financial difficulties. Deposit growth at commercial
banks varies widely across the District, with loan demand being
funded primarily through the sale of large CD's.
Retail Trade
Retailers in the Tenth District report that current
dollar sales in the first two months of 1982 about equaled sales in
the first two months of last year. They also expect sales in the
second quarter of 1982 to be about unchanged from the second quarter
of 1981, but anticipate a slight pick-up in sales in the fall.
Despite some leveling of merchandise costs, profit margins remain
slim because of low volume, clearance sales, and the rising costs of
utilities and labor. Store executives are satisfied with their
current stocks of goods.
Industry Activity
The majority of purchasing agents contacted in
the Tenth District report input prices have increased from 5 to 10
percent over the past year. Most firms are experiencing normal lead
times in obtaining materials. Rising prices and lengthening lead
times are expected when business conditions improve. But inventories
continue to be maintained at low levels because of uncertainties
regarding the economic outlook and the level of interest rates.
Housing and Housing Finance
Homebuilders' Associations report a
continuation of depressed conditions. Inventories of unsold houses
are very low. Among Tenth District homebuilders, the consensus is
that the demand for new houses won't increase significantly until
late this year, at which time shortages of materials could develop
quickly.
Savings and loan association officers express increasing dismay over the rising cost of funds and the dismal growth of savings inflows. Most foresee no long-run relief, but many expect a short-lived drop in interest rates to bolster deposits temporarily. Few are making mortgage loans at market rates of 17 percent to 18 percent, and even "blended rate" mortgages ranging from 12 percent to 16 percent are up only marginally over last year.
Agriculture
Winter wheat throughout the Tenth District is currently
in excellent shape, and a large crop is anticipated. Many farmers
are waiting to decide whether to comply with the 1982 Farm Program
acreage limitations, necessary if farmers wish to be eligible for
price support loans and deficiency payments. That decision must be
made before the April deadline. To comply, many farmers will have to
plow under a portion of their crop or use it for pasture. Banks and
Production Credit Associations report more difficulties in
qualifying farm and ranch borrowers for credit this spring. In some
cases, borrowers are having to sell some assets to improve their
cash flow situation or to reduce debt loads. Established farmers are
using their own cash reserves to keep their businesses in operation,
and some borrowers are turning to the Farmers Home Administration
for financing. Bankruptcies have not increased drastically this year
according to District bankers. More farm real estate is being
offered for sale this spring, than a year ago. However, very little
land is being sold.
Banking Developments
Reported loan demand at Tenth District banks
is generally flat with the exception of some strength in those areas
serving the energy industry. Commercial and industrial lending is
the only source of strength in loan demand Districtwide. Prime rates
range from 16 to 16 1/2 percent, up slightly from the previous
survey. Deposit growth varies widely across the District. Loan
demand continues to be funded primarily through the sale of large
CD's, as most banks report little growth in other deposit categories
with the exception of some seasonal strength in transactions
deposits.
Tenth District banks are moving cautiously in the area of deposit sweeping arrangements. Although a few of the banks contacted are considering offering deposit sweeps in the future, none are presently offering these arrangements. Most plans presently under consideration involve a tie-in arrangement with a mutual fund, while one bank indicates that excess balances might be placed in the RP markets. While no automated deposit sweeping arrangements are being offered, some cash management arrangements have been made on an individual basis for corporate customers.