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Beige Book Report: Kansas City

August 18, 1982

Overview
Business conditions in the Tenth District continue weak with little indication, as yet, that an economic recovery is underway. Retail sales across the District, however, improved somewhat in June. Automobile dealers have experienced a modest increase in sales, as well. Input prices, as reported by purchasing agents, are mixed compared to a year ago with some further trimming of inventories expected. Large corn and soybean crops are in prospect, if an early frost is avoided. Loan demand at Tenth District banks is generally flat, while deposit growth is mixed. Some deterioration in loan quality is occurring at commercial banks, resulting in more careful monitoring of the financial condition of all borrowers.

Retail Trade
Most retailers in the Tenth District report sales in the first half of 1982 were slightly less than in the first half of 1981. Sales improved somewhat in June with automotive repair and parts sales especially strong. Durable goods sales remain weak. While merchandise costs have not changed significantly in recent months, promotional price cutting is resulting in some downward pressure on profit margins for retailers. Primarily due to lackluster sales, inventory levels remain slightly higher than desired. Retailers express cautious optimism about sales in the remaining months of 1982, indicating that some further inventory liquidation is expected.

Automobile Industry
Automobile dealers in the Tenth District express guarded optimism due to recent marginal upswings in sales. With the exception of Colorado where sales were off 15 percent in July from a year earlier, the District is experiencing a general increase in sales, especially in Oklahoma. Credit is generally available, but at quite high rates. Dealers are still tightly controlling inventories. Yet, some larger dealers have expanded slightly-primarily in the better selling luxury cars. Dealer optimism, however, is fragile and they are reluctant to predict further significant increases in sales over the next six months.

Purchasing Agents
Tenth District purchasing agents report input prices are mixed compared to last year at this time, ranging from 15 percent decreases to 15 percent increases for certain materials. Prices are expected to remain relatively stable for the rest of the year, with at most a 5 percent increase for certain raw materials beginning in the fourth quarter. Firms contacted continue to trim their inventory levels and plan to maintain them at very low levels for the remainder of the year. Consequently, input availability is becoming a problem for many firms in the District. All firms report excess capacity at this time and no shortages of skilled labor.

Agriculture
Tenth District bankers report corn and soybean crop conditions range from good to excellent. Concern is expressed about the vulnerability of late planted crops to an early frost, however. Harvesting of the large Tenth District winter wheat crop is nearly complete. District bankers indicate that wheat prices are unusually low. The grain storage situation appears to be adequate at present with the possibility of some later shortage of storage facilities, depending upon the final crop production outcome. Hog production continues to be profitable and more cattle are on feed in the Tenth District than a year earlier. District bankers indicate that cattlemen are reducing the size of their cattle herds from year-ago levels.

Banking Developments
Loan demand in the Tenth District continues to show little or no growth. Districtwide, demand for commercial and industrial loans remains constant, although some banks in Colorado report a growth in loans to nonenergy-related businesses. While some banks indicate increases in agricultural loans, farm lending is generally weaker than normal for the season. Several Oklahoma bankers note strong growth in loans to finance commercial construction; however, there are no indications of greater real estate lending elsewhere. Demand for consumer loans is flat throughout the District. Districtwide, the prime rate ranged from 15 to 15 1/2 percent, down from the 16 to 17 percent range reported last month. Some bankers note a deterioration in the quality of their outstanding loans, resulting in close monitoring of the financial condition of all borrowers.

Deposit growth reported by Tenth District banks is mixed. NOW accounts show little or no growth, and money market certificates are up slightly. Growth in large CD's range from flat to moderately strong, except in Oklahoma where large runoffs are reported in some instances due to apprehension resulting from the Penn Square failure. Districtwide, other categories of time and savings deposits remain flat or down slightly, Very few commercial banks report their institutions offer deposit sweeping arrangements.