Beige Book Report: Kansas City
June 23, 1982
Overview
Business conditions in the Tenth District appear to be
firming somewhat, and attitudes about the future appear to be
slightly more optimistic. Retail sales gains have been stronger
recently, and are expected to improve further in the months ahead.
Inventories are well under control, with the possibility of some
additions to retail stocks in the third quarter. Input prices are
generally stable. Housing activity continues to be weak, as are
savings inflows to thrift institutions. If excessive moisture
conditions continue, it would have the potential of harming the
winter wheat crop and hindering the planting of other crops. Loan
demand at Tenth District commercial banks is generally flat. Deposit
growth is mixed, with NOW accounts the primary source of growth
beyond seasonal patterns.
Retail Trade
Most retailers in the Tenth District report sales
increases in the 2-9 percent range between the first five months of
last year and the first five months of this year. Sales improved
substantially in April and May of 1982, especially apparel and
softgoods; durable goods sales remained weak. Merchandise costs have
stabilized in recent months, resulting in few price increases at
retail. Tight controls and improved sales have brought inventories
well within desired levels. Some slight inventory buildup is
anticipated in the third quarter of 1982, as purchases of
merchandise increase to accommodate expected sales gains in the last
half of the year.
Purchasing Agents
The majority of purchasing agents contacted in
the Tenth District report input prices have remained stable or
decreased slightly compared to a year ago. Prices are expected to
remain stable for the rest of this year. All firms contacted are
continuing to trim their inventories and plan to maintain very low
inventory levels for the remainder of the year. Input availability
is not a current problem in the District, but could become one if
more suppliers go out of business or, in light of current capacity
utilization, the economic recovery occurs at a greater pace than
expected.
Housing Activity
Realtors and builders in the Tenth District report
generally weak sales and stable prices. Second quarter housing
starts have dropped 25 percent in Kansas City from last year, but
they have risen moderately in other areas-with an increase of over
20 percent in Oklahoma City. Prices are stable or up moderately-3 or
4 percent at most. Sales are generally moderately weaker than last
year, varying from down 10 percent in Kansas City to up marginally
in Oklahoma City. Sales are weakest in the $95,000 to $185,000 price
range. Supplies of building materials are adequate and inexpensive.
Builders warn, however, that a sudden rise in construction activity
will cause severe supply bottlenecks.
Housing Finance
Officers at Tenth District Savings and Loan
Associations lament the continuing decline of savings inflows-down
as much as 50 percent from last year. The 30-month CD has proven an
effective vehicle, however, propelling modest boosts for competitive
institutions. Officers fear that the recent upsurge in interest
rates forebodes a renewed exodus to money market funds. Most
associations are sticking to portfolio loans, but some report an
unexpected but modest pickup in market rate mortgages from very low
levels. One officer, however, dismissed the upswing as a mere
seasonal flurry, and most associations are unwilling to commit funds
past 30 days. Loans made at market rates are at interest levels of
16 1/2 to 17 percent, with little anticipation of a near-term
decline.
Agriculture
Some areas in the Tenth District have received an
excessive amount of moisture from the heavy rains occurring over the
past several weeks. This situation has delayed both the harvesting
of the winter wheat crop and, in turn, the planting of some fall
crops, particularly in southern Oklahoma. In northern Oklahoma and
Kansas the harvesting of winter wheat is soon to begin. No adverse
effects on the quality of the wheat are reported. Some hail damage
has been reported, but overall wheat conditions are estimated from
fair to good at this time. Bankers in Nebraska report favorable
progress being made in the planting of spring crops despite the cool
weather. Recent improvement in cattle and hog prices has had a
positive impact on the income of livestock producers in the Tenth
District. However, bankers report no signs of livestock producers
increasing their production capability.
Banking Developments
Reported loan demand is generally
characterized as flat throughout the Tenth District. Several banks
in Oklahoma indicate that commercial and industrial loan demand has
recently increased. However, in contrast to 1981 and the first
quarter of 1982, the source of this strength is in nonenergy related
businesses. Real estate lending is down throughout the District, as
is agricultural lending. Consumer loan demand is mixed with most
activity arising from credit cards. Several bankers note that the
overall quality of their outstanding loans has deteriorated, and
some are obtaining additional collateral and restructuring loan
terms. Deposit growth at Tenth District banks is mixed. Most bankers
contacted report some growth in NOW accounts, but few new accounts
are being opened. Those banks expanding loans are also generally
issuing large CD's. Virtually no growth is reported in all saver
certificates, and most other categories of deposits are following
their typical seasonal pattern.