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Beige Book Report: Kansas City

May 18, 1983

Overview
Tenth District business firms are generally optimistic about economic conditions in 1983. Their optimism has not been reflected in loan demand at District commercial banks, which remains unchanged for the third consecutive month. While retailers expect sales growth throughout the year, inventories are still being trimmed in many instances. Housing starts activity is strengthening, but new house sales are lagging. Wet conditions are delaying corn planting in the District, but the winter wheat crop is generally in good condition.

Retail Trade
Retailers report that nominal sales in early 1983 range from unchanged to 5 percent above last year, due largely to a rebound in home appliance sales in the last two months. Sales of apparel have tapered off. Forecasts of nominal sales growth in 1983 are in the 3 to 10 percent range. Despite increased optimism, abundant supplies and short lead times allow retailers to continue to trim inventories. Half of the respondents expect inventory levels to bottom out soon, however. For 1983 as a whole, retailers anticipate little change in prices or markups.

Purchasing Agents
A majority of manufacturers' purchasing agents report average prices of major inputs as unchanged to 10 percent higher than a year ago. Larger increases are reported for lumber, however. Most price increases have occurred in the past three months. For the rest of 1983, purchasing agents expect further increases in input prices to average less than 4 percent. With minor exceptions, respondents are not experiencing problems with lead times or material availability, nor do they expect such problems this year. Inventories are now at very low levels, and are expected to remain low for the rest of the year.

Housing and Housing Finance
Tenth District respondents report substantial increases in housing starts, especially single-family units, in early 1983 compared with early 1982. Most respondents believe that the present level of housing starts is sustainable at the current level of mortgage interest rates. Sales of new houses are not showing as much strength as starts. The current level of housing activity is putting little pressure on supplies and prices of inputs, with the exception of lumber. Further declines in mortgage rates are expected to bring further improvement in housing activity with no hindrance from supply constraints.

Most Tenth District savings and loan associations report improvement in deposit inflows in the first four months of 1983 compared to last year, due both to an improving economy and to new deposit instruments. Almost all associations expect continued gradual gains in inflows throughout the remainder of 1983. Demand for mortgage funds is also increasing. Mortgage interest rates range from 11 3/8 percent on adjustable rate loans to 13 percent on 30-year fixed rate loans. Rates declined slightly in April and are expected to decline gradually through the rest of the year.

Agriculture
The winter wheat crop in the District is generally in good condition, with some localized damage due to adverse weather conditions. Although the nation's winter wheat harvest is expected to be 10 percent less than last year, Kansas farmers should harvest the state's second largest crop ever. Wet conditions continue to delay corn planting in the Tenth District. Cattle grazing on wheat acreage idled by the PIK program is prevalent in the southern part of the District. Calving has proceeded normally with only isolated instances of unusually high death losses, despite a wet, cold spring. While it is too early to determine the full impact of PIK on input suppliers, sales are substantially lower than last year for fuel, fertilizer, and agricultural chemicals. New machinery sales are very sluggish, though some areas report brisk used machinery and haying equipment purchases. Agricultural credit conditions are generally improved throughout the District, as indicated by increased availability of funds, higher loan repayment rates, fewer requests for loan renewals and extensions, and lower interest rates. District farmland prices remain weak.

Banking
Loan demand at Tenth District banks is unchanged from last month. Real estate lending continues to show modest growth, while demand for commercial and industrial lending is experiencing modest declines. Most District banks surveyed report that deposits continue to grow although a few have experienced a normal seasonal runoff. Demand deposits are up slightly, while both NOW accounts and Super- NOW accounts are beginning to stabilize. In contrast, most of the banks surveyed report growth in money market deposit accounts (MMDA's), with funds still being attracted from outside institutions. Money market certificates, small saver certificates, and large CD's are holding steady. The prime lending rate is either down slightly or unchanged from last month. It ranges from 10.5 to 13.25 with most banks at the lower end of the interval. Most bankers surveyed expect further small declines in the prime rate. Consumer lending rates are reported to have declined slightly.