‹ Back to Archive Search

Beige Book Report: Kansas City

February 2, 1983

Overview
Business firms in the Tenth District are expecting a slow recovery to get underway during the second or third quarter of 1983. Recent stable prices are expected to rise slightly as 1983 moves along. Inventories are generally lean and are likely to remain so in the near future. Farmers and agricultural lenders are somewhat more optimistic about conditions in the agricultural sector, due partly to the expected response to the newly announced farm program. Loan demand at commercial banks is generally flat, while deposit growth is up because of strong growth in the new money market deposit accounts.

Retail Trade
All respondents indicate that nominal sales for 1982 as a whole were slightly higher (5 percent or less) than those in 1981. Sales in the final quarter of 1982 were between 5 and 10 percent higher than a year earlier. The strength in retail sales has come mainly in soft goods, with big-ticket items still very weak. Prices, which were stable during the last three months of 1982, are expected to remain stable or rise slightly in 1983. Retailers seem to be generally satisfied with the low level of their inventories. They expect sales to be sluggish in the first half of 1983 and to improve slowly after that.

Purchasing Agents
All purchasing agents report that prices of a wide range of materials inputs (e.g., steel, aluminum, rubber, plastics) have stabilized over the past three months. Agents expect prices to remain stable, inputs to remain accessible, and lead times to remain short during the first quarter of 1983. With the economy expected to pick up in the second quarter, firms anticipate suppliers may reestablish previously rescinded price hikes and eliminate current discounts. They also anticipate some spot shortages and longer lead times. Thus far, however, purchasing agents are not expanding inventories to accommodate the increase in demand they foresee.

Automobile Dealers
Automobile dealers are guardedly optimistic about the chance for increases in auto sales during the next few months. November 1982 was reported as a very good month, but sales were flat to only slightly higher in December 1982. Despite trim inventory levels and lower interest rates, there has been no rush to greatly expand stocks. Some dealers remain fearful of the potential adverse impact on interest rates of looming large federal deficits.

Agriculture
Cattle feeders are currently doing well and making a profit, according to Tenth District bankers. Winter wheat conditions in the southern part of the District are poor-to-fair, and little grazing of cattle is reported. Bankers and farm borrowers are enthusiastic about the 1983 Payment-In-Kind (PIK) program, with high participation anticipated. District bankers report that some nonfarm rural businesses view the PIK program as just another government subsidy, and are concerned about its negative impact on demand for the products and services they sell to farmers. Others look forward to an improved farm economy as a means to helping their own financial situation. Loan paydowns by District farmers on their agricultural production loans have generally been disappointing. Bankers in some areas of the District report an 80 percent loan rollover rate with 60 percent of the farm borrowers making small and/or slow paydowns. Many farmers have sold their crops at prices below the cost of production to generate cash flow, rather than holding the crop in anticipation of improved prices. Although 1983 has not yet revealed evidence of improved conditions for the agricultural sector, a more optimistic mood by farmers and lenders is beginning to build.

Banking
Loan demand is reported to be generally flat in the Tenth District. Demand for real estate loans is up slightly, but demand for consumer, agricultural, and commercial and industrial loans is flat. Virtually all respondents indicate that loan quality is stable, although one banker reports a rising number of defaults on energy-related loans.

Prime rates charged by the banks surveyed vary from 11 to 14 percent, with most falling in the 11-12 percent range. Rates have fallen around 50 basis points since last month. Roughly half of the bankers surveyed expect a further decline of 50 basis points in coming weeks while the other half expect no change.

Deposit growth is up at Tenth District banks, due in large part to strong growth of the new money market deposit accounts. Demand deposits are steady to slightly up, while conventional NOW accounts are steady to slightly down. Large CD's and money market and small saver certificates are down somewhat.

All of the banks surveyed are offering the new money market deposit account and the new Super-NOW account. Public response to the former is characterized as strong, while response to the latter is characterized as weak. Three explanations are given for the apathetic response to the Super-NOW account: weak promotional campaigns, consumer confusion, and competitive superiority of the money market deposit account (higher yield, lower service charge). Bankers report that as much as 60 percent of the funds flowing into money market deposit accounts are coming from outside their institutions. Preliminary data suggest a much lower percentage for Super-NOW accounts.