Beige Book Report: Kansas City
October 23, 1986
Overview
Little change from the recent pattern of sluggish activity in the
Tenth District is evident. While housing activity remains stronger
than a year ago, some recent weakening is reported. Retail sales
continue to improve but auto dealers are not optimistic about future
sales. Both manufacturers' inventories of materials inputs and
retail inventories are generally viewed as satisfactory. Neither
retailers nor purchasing agents expect other than modest price
rises. The energy and agricultural sectors resin depressed.
Moderation in demand for mortgage funds at savings and loan
institutions is expected to continue. Total loan demand at district
commercial banks was generally unchanged over the past month.
Retail Trade
Retailers report sales moderately stronger than a year earlier, with
sales continuing to improve over the past three months. In the more
recent period, sales of furniture, bedding and apparel have been
particularly strong in most instances. Retail prices are reported to
be steady. Inventories are generally regarded as satisfactory, with
a few respondents trimming stocks. Sales growth is expected to
continue at about the seine pace, with little increased inventory
growth and steady prices.
Automobile sales
Auto dealers report good to very strong sales during the last month.
Ample low-priced credit has stimulated sales. Inventories of 1986
models are being reduced significantly and 1987 model inventories
are growing. Dealers are not optimistic about the outlook for future
sales.
Purchasing agents
Purchasing agents continue to report slightly to moderately higher
prices for major inputs, but expect little further change in the
period ahead. Materials continue to be readily available, and no
problems with availability or lead times are expected. Inventory
levels are regarded as satisfactory and little change is expected in
inventory activity. None of the respondents report any production
bottlenecks.
Housing activity and finance
Area homebuilders still report starts up aver a year ago, but some
weakening in the past month. Starts of multifamily dwellings are up
less than single family starts. Most homebuilders expect housing
activity to remain about the see during the rest of the year. Sales
of new homes, and changes in new home prices vary depending upon
location. Builders generally report good availability and steady
prices of materials.
A number of savings and loan respondents have experienced light to moderate savings outflows recently, while inflows have been slight for others. Most anticipate little improvement in savings inflows until the first quarter of 1987. Demand for mortgage funds has apparently begun to moderate. This moderation is expected to continue, influenced partly by the passing of the "refinancing bulge" and by seasonal factors. Mortgage interest rates have stabilized and are expected to remain steady.
Energy
The serious slump in the district's energy industry continues
despite somewhat firmer prices resulting from the recent OPEC
agreement to temporarily cut output. The average weekly number of
operating drilling rigs in the Tenth District was up slightly to 215
in September from 208 in August, but remains far below the 550 rigs
counted in January. Exploration and development activity is expected
to remain depressed as a result of uncertainty about the future
course of oil prices.
Agriculture
September's record-setting rainfall hit three district states
especially hard. Prolonged, heavy rainfall delayed harvest as much
as 30 days in parts of Missouri, Kansas, and Oklahoma. While losses
in Missouri and Kansas are expected to be minor, 20 to 50 percent of
the Oklahoma wheat pasture planted after mid-September was destroyed
by heavy rains. There are no estimates yet of damage to Oklahoma's
cotton crop. The rainfall also delayed winter wheat planting by as
much as 30 days in parts of Missouri, Kansas, and Oklahoma. In some
areas, the delay means there will be no winter wheat planted this
season. Livestock marketing in southwest Oklahoma was down due to
the inclement weather.
Among cow-calf operations in the district, a mixed pattern of both selling and holding spring calves has emerged. Operators holding calves are doing so either to rebuild their herds, or to take advantage of cheap and plentiful feed grain. Some operators are selling calves this fall in response to favorable prices. In other cases, lenders are requiring the sale of calves for paydown of livestock loans. And in Oklahoma, some selling has occurred because wheat pasture is flooded.
Despite strong hog prices, agricultural lenders in Missouri, Kansas, and Nebraska see no signs of expansion in pork production. Hog producers, concerned about keeping current on their loans, are using hog profits to pay down debt. As long as this activity continues, the expected expansion in pork production will likely be delayed.
Banking
Total loan demand was generally unchanged and total deposit activity
has been mixed during the past month at Tenth District banks. Some
bankers surveyed indicate an increase in residential real estate
loan demand but most report unchanged or weaker demand for these
loans. Commercial and industrial, consumer, commercial real estate,
and agricultural loans are also mostly unchanged or down from one
month ago. None of the respondents have changed their prime rate or
consumer loan rates during the last month but most expect rates to
fall some by yearend. Among deposit accounts, NOW, super-NOW and
passbook savings accounts remained constant or increased. MMDA
accounts were constant at most banks in the sample while other
deposit categories were mixed.