Beige Book Report: Kansas City
September 29, 1982
Overview
Business conditions in the Tenth District are mixed with
only hints that a weak recovery is under way. Retail sales are
growing slowly and the pressures to decrease inventory have
declined. Purchasing agents, however, are still attempting to
decrease inventories and do not anticipate increases in prices until
next year. While savings and loan associations are still having
problems, recent declines in interest rates are improving their
situation. Lower interest rates are also improving sales of
expensive houses, but lower priced house sales still languish.
Without a severe frost a large harvest of corn and soybeans is
assured, continuing the downward pressures on crop prices. Both loan
demand and deposit growth in the Tenth District are flat. There are
some reports that the decline in loan quality has stabilized.
Retail Trade
Retail sales grew moderately in the Tenth District
during the first eight months of 1982 as compared with the same
period last year. Most of the sales gains came in apparel and
softgoods during July and August. Merchandise costs remain stable as
do profit margins. Inventories are slightly higher than expected but
are not causing concern heading into the fall and Christmas selling
seasons. District retailers expect continued growth in sales during
the rest of the year.
Purchasing Agents
Tenth District purchasing agents report input
prices have risen from 2 to 6 percent during the past year. Prices
are expected to remain stable for the remainder of the year and to
begin increasing early next year. All firms contacted are decreasing
inventories. A few firms are experiencing slightly longer lead times
on purchases, but input availability is not considered a major
problem in the Tenth District. All firms continue to have excess
capacity, and a few have laid off workers recently.
Savings and Loan Activity
Savings inflows at Tenth District savings
and loan associations are advancing but have still failed to lift
many institutions out of a net outflow position. Most officers at
those associations expect higher inflows for the rest of the year.
District associations continue to commit funds to blended rate
mortgages for existing customers. Commitments to first time
applicants, however, remain at very low levels. Officers quote rates
on blended mortgages averaging 13 1/2 percent and rates on first
time conventional loans averaging 15 1/2 percent. These mortgage
rates have fallen one to two percentage points since July. Officers
at most associations expect rates to drop one more percentage point
by the end of the year.
Home Builders' Associations
Tenth District home builders'
associations indicate that housing starts are showing slight
increases over last year's levels, with single-family units doing
considerably better than multi-family units. Sales of new homes in
the $150,000 and higher bracket are increasing, but sales of lower
priced homes continue to be sluggish. Inventories of new homes are
at very low levels, with no change expected until the signs of
economic recovery are more definite. Building materials are, for the
most part, plentiful in the Tenth District. However, some shortages
are occurring for some types of lumber.
Agriculture
Crops are maturing at a rate only slightly behind
normal in most areas of the Tenth District. Harvesting of corn is
well under way. Soybeans, though, are still maturing and harvesting
is expected to begin in the next two weeks. The possibility of an
early severe frost threatens areas in Colorado, Kansas, Missouri,
and Nebraska with potential damage to soybeans and grain sorghum of
25 to 50 percent. Parts of Nebraska have already been exposed to
light frost-but with little damage. Some shortages of grain storage
capacity are beginning to appear throughout the Tenth District.
Higher prices for hogs have improved the financial condition of
producers, but very little expansion of hog production is being
reported thus far.
Banking Developments
Overall loan demand is steady throughout the
Tenth District. Business loan demand is declining primarily due to
the slowdown in oil and gas exploration. Lower rates are causing a
modest increase in real estate and automobile loan demand, however.
Agricultural loan demand remains low. The deterioration of loan
quality which has been observed over the last year seems to be
stabilizing. Only a few bankers are experiencing a modest decline in
loan quality. The prime rates charged by the banks surveyed range
from 13 1/2 to 15 1/2 percent. The range in August was 14 to 15 3/4
percent. Most bankers do not expect an increase in rates during the
next month.
Overall deposit growth at Tenth District banks is flat. Several bankers report strong growth in existing NOW accounts, but very few new accounts are being opened. Almost no growth in All Savers Certificates is reported. Most bankers are not concerned about the possible loss of these funds at maturity. One banker reports the cancellation of a planned repurchase agreement account due to the position taken by the FDIC that holders of repurchase agreements at the failed Mount Pleasant Bank and Trust Company have no claim to government securities pledged to back up the agreement.