Beige Book Report: Kansas City
November 16, 1982
Overview
While business conditions in the Tenth District remain
very weak, there are some indications that the recession has
bottomed out. Although retail sales deteriorated in October, the
upcoming holiday season is producing cautious optimism. Purchasing
agents indicate that they are no longer reducing inventories, and
auto dealers seem to expect increasing demand as interest rates
continue to fall. Although interest rates on farm loans are
declining, bleak income prospects are producing financial stress
among Tenth District farmers. Prime rates charged by commercial
banks are falling and total loan demand is flat, as is overall
deposit growth.
Retail Trade
Most retailers in the Tenth District report only
modest sales gains in the first 10 months of 1982 compared to last
year. Sales deteriorated substantially in October with sales of
recreation and leisure merchandise remaining the only bright spot.
Merchandise costs have not changed appreciably for retailers in
recent months, but most are heavily involved in promotional price
cutting. Inventories of merchandise are adequate for the coming
holiday buying season, but are high relative to the rest of 1982.
Most retailers remain cautiously optimistic about sales in November
and December of this year.
Auto Dealers
Auto sales are somewhat weaker than at this time last
year but have picked up recently. Large cars are selling to the more
affluent clientele, but small car demand is quite weak. Recent
interest rate declines have yet to affect automobile dealers. Rates
on consumer loans have begun to ease; however, they have lagged
behind declines in the prime and other market rates. Floorplan
financing costs remain high. Except for 1982-model carryover, dealer
inventories are either stable, at a minimum level, or are declining.
Each respondent indicated optimism about the outlook for sales and
expressed the belief that declines in interest rates should free
some pent-up auto demand.
Purchasing Agents
Almost all purchasing agents report input prices
have fallen relative to a year ago. The amount of the decline varies
from industry to industry with a precipitous drop (10-25 percent)
occurring in the cost of metals, polyethylene film and wood
products. The outlook for the next few months indicates a bottoming
out of the downward trend in input prices. All firms forecast inputs
to remain accessible into the first quarter. Clouding the horizon,
though, is the possibility of further declines in the number of
suppliers for a few inputs. While a few companies continue to reduce
their inventory levels, the majority are satisfied with existing
stocks. Plant utilization varies widely, with some plants operating
at less than two-thirds of capacity.
Agriculture
Harvest progress in the Tenth District varies widely
from state to state, with little damage reported as a result of
frost occurring in some areas. The corn harvest is almost 75 percent
complete in most states while soybeans and sorghum are lagging
behind. Corn and bean production is expected to be above last
year's, and sorghum production will likely be less than a year ago.
Grain storage capacity appears adequate throughout the District, but
when harvest is over all available storage facilities will have been
utilized. The planting and growth of winter wheat is lagging
slightly behind normal, except in Oklahoma where the wheat is in
urgent need of rainfall. District bankers continue to be receptive
to farm loan requests backed by positive cash flows. Interest rates
on farm loans have recently declined throughout the District and are
averaging between 14 and 15 percent with further declines expected.
The interest rate reductions are welcomed by hard pressed farmers
and rural businessmen. However, bleak income prospects continue to
add to the financial stress experienced by Tenth District farmers.
Banking Developments
Reported loan demand is generally
characterized as flat throughout the Tenth District. Demand for
construction loans is up somewhat, while energy-related demand is
down. Demand for other commercial and industrial loans, consumer
loans, real estate loans, and agricultural loans appears steady.
Most bankers report continuing modest deterioration of loan quality.
Prime rates charged by the banks surveyed range from 12 to 13
percent. Rates have fallen as much as 150 basis points from last
month. Virtually all the bankers questioned expect future declines.
Overall deposit growth is flat, or slightly up. NOW accounts, large
CD's, and smaller saver accounts have experienced some growth.
Demand deposits have continued to decline somewhat at most banks.
Banks in which All-Savers deposits are a significant fraction of
total deposits report that a large portion of the maturing All-
Savers has been retained, either through rollover or through
transfer to other types of deposits. Virtually all the banks
surveyed intend to offer, and aggressively market, the new money
market account being formulated by the DIDC. Opinions vary as to the
expected sources of funds for this new account.