Beige Book Report: Kansas City
October 23, 1984
Overview
Some moderation continues to be apparent in Tenth District economic
activity. While retail sales continue to improve, housing activity
and mortgage demand have generally slowed. Inventories of retail
goods are slightly larger than desired, while inventories of
materials inputs are at satisfactory levels. Price increases have
been small, and are expected to continue so. Loan demand is
increasing slightly at district banks, while deposits remain
unchanged. Yields of fall-harvested crops varied across the district
while the newly-planted winter wheat crop is in good condition.
Retail Trade
Retailers report that year-to-date retail sales are up significantly
over a year ago, and that sales continued to improve in the past
three months. Inventories are slightly larger than desired for some
retailers. However, no major trimming is intended, because most
retailers are optimistic about sales through the remainder of the
year. Prices remained generally flat in recent months, and no
significant increases are anticipated through the remainder of the
year.
Automobile Sales
Automobile dealers throughout the Tenth District continue to report
improved sales in 1984 relative to last year. Credit market
conditions are satisfactory, and financing is available both for
floorplanning and car buyers. Most dealers report smaller
inventories due mainly to the 1985 model introductions and partially
to the GM strike. Dealers are optimistic about sales for the balance
of 1984 and early 1985.
Purchasing Agents
Purchasing agents report input price increases of 5 to 10 percent
over the last 12 months, with virtually no price increases during
the last three months. Although metals prices are expected to
continue to fall, prices for other inputs are generally expected to
remain stable through the end of the year. No problems with
availability were reported and none are expected. Most purchasing
agents report inventories at satisfactory levels, and no substantial
changes in inventory levels are planned.
Housing Activity and Finance
Residential construction activity is softening. Single-family starts
are generally down, particularly since August. Starts in multi-family units range from below year-ago levels to about the same
levels. Housing starts are expected to slow through yearend if
interest rates remain at, or rise above, their current level. Sales
of new houses are generally down from last year (except in Colorado
where sales have been steady). Building materials are in good supply
and are expected to remain so. Prices for materials are generally
steady. Demand for mortgage funds and mortgage commitments at
savings and loan associations is slowing because of slight increases
in mortgage rates over the past months, and also because of seasonal
declines. Most respondents expect mortgage demand to continue
decreasing, although rates are expected to stabilize. Savings
inflows range from much higher to much lower than last year.
Increased competition was cited as a contributor to the declines at
certain institutions. Respondents, however, generally anticipate
only very moderate changes in savings flows for the remainder of
1984.
Banking
Total loan demand increased slightly last month at Tenth district
banks. The gains were distributed unevenly throughout the district,
however, reflecting the diversity of economic conditions. Commercial
real estate loans and commercial and industrial loans increased
where strong construction activity is underway. The slight increase
in consumer loans was also concentrated in the economically more
active areas of the district. Residential real estate loans declined
district-wide, however, as did agricultural loans. Following money
center banks, Tenth District banks reduced their prime lending rates
by three-quarters of a percent early in October to rates ranging
from 12 3/4 to 13 3/4 percent. Most bankers expect the prime to
decline slightly further, although they expect a lower prime to have
little effect on consumer lending rates. Consumer lending rates were
generally unchanged from last month. Total deposits remained
unchanged last month at Tenth District banks, reflecting the general
lack of strong loan demand and the slow pace of the district
economy. A slight increase in MMDA's and IRA and Keogh accounts
offset a slight decrease in demand deposits and passbook savings
accounts, while other deposits remained constant.
Agriculture
Fall harvest is underway in district states. Corn yields in New
Mexico, Oklahoma, and parts of Colorado and Nebraska are average to
above average this year. Other parts of the district have not
harvested corn yet due to wet conditions, and yields in Kansas and
Missouri may be below average. Below average soybean yields in most
district states are partly attributed to late planting in the spring
and to an early frost. Reports on sorghum yields are mixed. Planting
of the winter wheat crop is underway throughout the district. Though
just starting in Kansas, planting is finished in Oklahoma, Colorado
and parts of Nebraska, while other states report 50 to 75 percent of
the crop planted. The crop is in good condition, and moisture
conditions are generally favorable. Very little wheat acreage will
be used as pasture this fall, but range conditions in the district
are generally good. Bankers are generally pessimistic about debt
repayment by farmers this year. Production loans will be repaid, but
little reduction of intermediate and long-term debt is expected.
Some bankers expect problems in receiving full payment of interest
on outstanding loans. Reports of foreclosures and partial
liquidations are mixed. With some exceptions, most bankers believe
that agriculture's financial stress will worsen during the year
ahead.