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Beige Book Report: Kansas City

August 6, 1985

Overview
Recent modest economic growth in the Tenth District is expected to continue through the rest of the year. Retail sales have improved and are expected to continue to outpace last year's sales. Retail inventories have been reduced to satisfactory levels, while some further trimming of producers' input stocks is expected. Housing starts are lower than a year ago, but falling mortgage loan demand is expected to stabilize soon. District banks report mixed loan conditions and essentially unchanged deposits overall. The winter wheat harvest is nearly complete with yields in most district states at or below average compared to other years.

Retail Trade
Most retailers report improving current dollar sales after a weak showing in May, with sales of apparel and accessories especially strong. Overall, sales in the first half of 1985 are slightly above the first half of last year. Sales are expected to continue to run slightly ahead of last year. Retail prices have been stable during the past three mouths and are expected to remain stable throughout the rest of the year. Most retailers have been trimming inventories, but are now satisfied with their levels and no significant further change is anticipated.

Automobile Dealers
Automobile dealers report sales very close to year ago levels. Financing is readily available for both dealer floorplanning and customer purchases. Dealers are trimming inventories to make room for the 1986 models. Most dealers expect that total 1985 sales will be about as strong as 1984 sales.

Purchasing Agents
Purchasing agents report input prices not much different from a year ago. Falling semiconductor prices have benefited some firms and falling crude oil prices have helped others. Little further change is expected for the remainder of the year. Input availability is excellent and is expected to remain so. Materials inventory levels range from satisfactory to somewhat high. Inventories are expected to be trimmed in coming months or reasons ranging from normal seasonal behavior to decreased sales projections.

Housing Activity and Finance
Most homebuilders report sharply lower starts, both single-family and multi-family, relative to a year ago. Expectations about starts for the remainder of the current year vary widely. Sales of new homes also vary considerably as a number of builders report sharply lower sales. New home prices have remained stable; inventories are described as good to slightly high. Prices of materials are generally reported as steady and material availability is described as good. Savings and loans institutions report savings inflows slightly higher than a year ago. No dramatic change is expected in the near future. Most respondents report lower mortgage demand and commitments but expect both to stabilize shortly. Mortgage rates have remained constant to slightly lower, with a slight decline or no change expected in the months ahead.

Banking
Tenth District banks report mixed loan behavior and largely unchanged deposit behavior. Half of the banks surveyed had increased consumer loan demand, with the other half reporting unchanged or decreased consumer demand. Real estate loan demand was fairly evenly divided among increases, decreases, and no changes last month. Commercial, industrial, and agricultural loans were either unchanged or down. The prime rate has fallen 0.5 percentage point at most banks surveyed, with many banks expecting further declines in the near term. Consumer lending rates, however, are largely unchanged. Deposit behavior last month was, on average, unchanged. Deposits in NOW accounts, Super-NOW accounts, money market deposit accounts, and small time deposits tended to either increase or remain constant, while large CD's and passbook savings tended either to decline or remain constant. Demand deposit behavior was more mixed, with about equal numbers of respondents reporting increases, decreases, and no change.

Agriculture
The winter wheat harvest is nearly complete, with yields in Missouri, Kansas, and eastern Nebraska about average. Bad weather led to disappointingly low yields in Oklahoma, and low yields are also expected in Wyoming and western Nebraska due to dry conditions and grasshopper damage. Colorado's wheat harvest produced almost twice the normal yield.

Conditions of spring crops and ranges generally are good across the district. Corn and soybean conditions are reported good to excellent in Missouri, Kansas, and eastern Nebraska. However, corn and soybeans in western Nebraska are suffering from extreme dryness and grasshopper infestations, while the condition of the Colorado corn crop is reported to be spotty. Adequate moisture has provided good range conditions in the eastern portion of the Tenth District. However, the western part of the district is experiencing extremely dry range conditions. Due to poor crop conditions, ranchers in Wyoming are moving their cattle to market and selling at discounted prices. Cattle are also moving to market in western Nebraska, but to a lesser degree.

Agricultural lenders throughout the district report that land acquired by financial institutions through foreclosure or liquidation is being moved onto the market with little or no delay. Moreover, banks in all district states report that they are taking market prices for farm real estate, and often setting no minimum at auction.

Many farm equipment dealers in the district remain in financial difficulty. Producers and sellers of farm equipment continue to cut back on inventories and number of employees. Farm equipment sales in Oklahoma have declined dramatically from the already low levels of a year ago.