Beige Book Report: Kansas City
August 10, 1983
Overview
The business recovery in the Tenth District appears to be
quickening, led by strong growth in retail sales in recent weeks.
New car sales are improving, with some depletion of stocks below
desired levels. Other retail inventories, as well as materials
inventories are generally viewed as satisfactory. A moderate
slowdown in housing activity is expected for the rest of the year,
with demand for mortgage funds weak at thrift institutions. Record
yields were recorded in the harvest of winter wheat, but corn yields
will suffer if extreme high temperatures continue. Loan demand at
commercial banks has increased moderately, with most of the increase
in consumer loans. Deposits are also up moderately.
Retail Trade
Retailers report nominal sales gains in the 3 to 10 percent range
for the first half of 1983 compared to the same period a year
earlier, with particularly strong growth in the past 4 to 8 weeks.
Sales of apparel are showing considerable strength due in part to
the beginning of back-to-school sales. Retailers expect sales to
continue growing through the remainder of 1983. Inventory levels are
generally satisfactory, and little further correction in these
levels is expected during the rest of the year.
Purchasing Agents
For about half of the firms contacted, input prices remain lower
than in July of last year. But most input prices either have
increased over the last three months or have quit falling. Most
purchasing agents expect prices to increase somewhat over the rest
of the year, although a few foresee no further changes. Firms are
generally satisfied with current inventory levels and plan to keep
inventories low as the recovery proceeds.
Auto Dealers
Automobile dealers report improved sales in the first half of 1983
compared to the first half of 1982. Dealers have depleted their
stocks of 1983 model cars, in part because of the attractive rates
offered by captive financing companies. Inventories of larger cars
are especially low. Most. dealers express optimism about the outlook
for car sales but state that sales could be adversely affected by
increases in interest rates.
Housing Activity and Finance
Housing starts are about double last year's rate, with single-family
starts improving more than multi-family starts. Because sales of new
homes are also higher, inventories remain low. For the rest of 1983,
the improvement in housing starts is expected to moderate because of
recent increases in interest rates and uncertainty about future
sales. Even with a moderate slowdown, however, housing starts this
year are expected to significantly exceed housing starts last year.
Most savings and loan associations report an improvement in savings
inflows in the first half of 1983 compared to the first half of
1982, and continued improvement is expected through the third
quarter. Mortgage rates range from 12 percent on variable rate
mortgages to 13 3/8 percent on fixed rate mortgages. At those
levels, demand for mortgage funds is reported to be weak at almost
all institutions. Mortgage rates are expected to remain steady until
near the end or 1983 and then decline slightly.
Agriculture
Harvesting of winter wheat throughout the Tenth District is
virtually complete with record crop yields. Most wheat farmers
stayed with the PIK (Payment-in-Kind) program resulting in a
significant amount of wheat being plowed under to comply with
acreage restrictions. Some District farmers receiving PIK payments
have used the receipts from sales for debt repayment, but most grain
received is being held rather than sold in the market. Corn
growers report little damage yet from persistent high temperatures
but damage will likely escalate sharply if the heat persists. Corn
released from the reserve program is being held for cattle feeding
rather than being sold in the market. The overall condition of
livestock in the District is good, in spite of slower weight gain in
cattle due to heat related factors. There is little evidence of herd
expansion activity by hog producers. Although farmland values
throughout the Tenth District are reported by bankers to be
stabilizing or rising slightly, not much land is changing hands. The
PIK program appears to be aiding farmers as they have increased loan
repayments and are making fewer requests for renewals or extensions
of existing credit.
Banking
Tenth District banks report a moderate increase in loan demand due
mainly to growth in consumer loans, especially automobile loans.
Although residential mortgage lending also increased, the demand for
home loans is as expected to decline sharply in the coming months as
mortgage rates drift upward. Commercial and industrial loans
increased very slightly at Tenth District banks, and agricultural
lending remains flat throughout the District. Tenth District banks
report no change in loan quality since last month's survey. The
prime lending rate is 10.5 to 11 percent, unchanged from last month.
Deposits are up moderately at Tenth District banks. Growth in money
market deposit accounts, money market certificates, and small saver
certificates is responsible for most of this increase. About half
the responding banks report increases in IRA and Keogh accounts.
Demand deposits, conventional NOW accounts, and Super-NOW accounts
remain constant. Tenth District banks are allowing large CDs to run
off, reflecting expectations of only modest loan demand in the
immediate future.