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Beige Book Report: Kansas City

September 16, 1985

Overview
Economic conditions in the Tenth District continue to be sluggish. Retail sales are generally stable to off slightly, with some seasonal improvement expected. New car sales have been weak recently, but dealers remain optimistic about the rest of the year. Prices generally remain steady, both at retail and for manufacturers' inputs. Some trimming of both retail inventories and material inventories is occurring. A generally good wheat harvest is being followed by anticipations of bumper fall crops. Little growth in deposits is reported by district banks, while loan demand is somewhat more mixed.

Retail trade
Most retailers report a modest drop in sales from the same time last year. Stable to slight declines characterize sales over the past three months. Clothing and accessories have been the strong sellers while home furnishings sales are below average. Sales are expected to increase with the coming of the holiday season. Prices are stable and are expected to remain so through the end of the year. Retailers are trimming their inventories except for anticipated seasonal increases.

Automobile sales
Automobile dealers report mixed sales, satisfactory inventory levels, ample financing, and a cautious optimism regarding sales for the remainder of the year. Sales are down slightly in most areas, although Wyoming reports a moderate increase over year-ago levels. Dealers are currently satisfied with inventory levels, having tried to make room for the 1986 models. The Teamsters' strike had little impact, with only New Mexico citing any adverse effects. Financing is readily available for dealer floorplanning and customer purchases. Despite recent weakness, the new factory sponsored financing has dealers optimistic that 1985 sales will equal the strong 1984 showing.

Purchasing agents
Most purchasing agents report that input prices have increased slightly relative to a year ago, but input prices are generally expected to remain constant through the end of the year. No difficulties in obtaining materials are reported, and none are anticipated. Finally, most agents report some trimming of inventories, due to decreased sales as well as to seasonal factors.

Agriculture
Wheat harvest is complete in the Tenth District, with the outcome being mixed across the states. The wheat crop in Colorado, New Mexico, and Oklahoma was much better than average. Yields in Missouri and Kansas, though not as high, were still better than average. In contrast, extremely dry conditions in Wyoming and western Nebraska resulted in a poor wheat harvest. Paydowns on loans by winter wheat farmers in most district states have generally met expectations, but paydowns have been slow in Wyoming and western Nebraska where the wheat crop was disappointing.

Good moisture throughout the Tenth District will favorably affect production and yield of fall harvested crops. Corn, soybean, and sorghum conditions are reported good to excellent, with bumper crops anticipated. Moisture is also good in Oklahoma, where the cotton crop is expected to be above average.

Only a small proportion of the district's wheat and grain crop will be sold. Instead, about three quarters of the wheat crop and two- thirds of the grain crop will probably go into Commodity Credit Corporation (CCC) loans. These proportions, which are well above average, have the potential to depress future commodity prices and thus increase the total amount spent by the federal government on deficiency payments to farmers.

Livestock production has also benefited from the good weather. Rangeland conditions are described as ideal, except in Wyoming and western Nebraska, where conditions are very poor due to extreme dryness. As a result, ranchers are moving cattle off the range prematurely and selling them at discounted prices.

Banking
Loan and deposit behavior was, on average, reported to be unchanged by respondents at Tenth District banks, though loan demand was somewhat more mixed than deposit behavior. Banks surveyed were equally split between increased, decreased, and unchanged consumer loan demand. Those with decreased consumer demand cite as the primary cause competition from domestic auto manufacturers offering low interest loans to reduce inventories of 1984 models. Commercial and industrial loans were either unchanged or down, with only a small percentage of banks reporting increases. Agricultural loan demand was mostly unchanged. Residential real estate loan demand increased at most responding banks while commercial loan demand was mostly down. Respondents report a shift from office building construction toward more shopping center construction. The prime rate has remained the same at nearly all banks surveyed, as have consumer lending rates. Deposit behavior was unchanged for the most part during the past month. There was little variation in deposits in NOW accounts, Super-NOW accounts, small tine deposits, and passbook savings accounts. Demand deposit behavior varied a little more- though most banks surveyed report no change, a few report slight increases and a few report slight decreases. Money market deposit accounts tended to increase, while large CD's either decreased or remained unchanged.