Beige Book Report: Kansas City
January 28, 1987
Overview
Tenth District economic activity continues to improve modestly.
Retail sales are moderate to strong, and auto sales for December
were up due to tax law effects. Inventory levels are viewed as
satisfactory to slightly high, and prices are expected to remain
relatively stable. Housing activity has been helped by mild weather.
The energy industry remains generally depressed. Deposits at
district banks are stable to higher compared with a month earlier.
Paydowns on farm loans are improved compared with a year ago.
Retail Sales
Retailers report moderate to strong increases in sales over year ago
levels, with sales of women's apparel particularly strong. Prices
have not changed little during the last three months and are
expected to remain stable. All retailers report satisfactory
inventory levels. Although some retailers are optimistic about 1987
sales, many express concern that first quarter sales might be soft.
Automobile Sales
December auto sales were up from previous months, mainly due to the
1987 elimination of the sales tax deduction. Favorable credit market
conditions have also helped sales While inventory levels are
generally acceptable, a few dealers report slightly high
inventories. Dealers report a cautious optimism regarding future
sales.
Purchasing Agents
Purchasing agents in the Tenth District report stable to slightly
higher input prices. Most expect relatively stable prices over the
next three months. Materials are readily available, and no problems
with availability or lead times are expected. Most firms are
reported to be trimming inventories and generally plan to continue
this policy over the near term.
Housing Activity and Finance
Mild weather this winter has allowed housing starts to run at or
ahead of last year's levels Multi-family housing construction has
been strong in some areas, while strength in single-family
construction has been more widespread. Homebuilders are optimistic
for new home sales after some sluggishness in December sales.
Builders report no problems with either the availability or delivery
of housing materials, and materials prices are generally steady.
Most savings institutions report light savings outflows over the last twelve months due to competition for these funds, but flows have leveled off in the last month. Most expect some savings inflows in the near future. Demand for mortgage funds varies from up slightly to down moderately. Mortgage interest rates have declined slightly, and respondents expect continued modest declines in the future.
Energy
The district's energy industry has recovered only slightly from the
weakness caused by the dramatic decline in oil prices in 1986. Oil
prices remain well below year ago levels, although a recent OPEC
agreement to restrict output has caused prices to firm somewhat.
Exploration and development activity in the district has rebounded
only slightly and remains generally depressed. The average weekly
number of operating drilling rigs in the Tenth District increased
from 272 in November to 294 in December, about half the number
recorded a year earlier.
Agriculture
Throughout much of the Tenth District, paydowns on agricultural
loans are satisfactory, and generally improved over last year.
However, due to late harvests and wet weather, some areas in the
district report delayed paydowns on 1986 agricultural loans. Late
harvests have also delayed spring credit decisions for some district
banks. Even so, most bankers report that very few of their current
borrowers will be denied credit this spring, due to previous action
to eliminate problem credits from loan portfolios and to use of the
loan guarantee program of the Farmers Home Administration.
To limit additional build-up in commodity surpluses, 1987 farm programs will allow producers to idle up to 35 percent of their acreage. Across the district, bankers generally expect a high proportion of farmers—perhaps exceeding two-thirds—to participate in the set-aside program, although few farmers have committed to date.
A mild winter, abundant winter wheat pasture, and low grain prices have encouraged many district cow-calf operators to hold more calves through the winter this year than last. Low grain prices and relatively strong hog prices have led to expectations of an expansion in hog production, but few signs of an expansion have emerged.
Banking
Total loan demand was mixed, and total deposit activity was
generally constant or up, at Tenth District banks during the past
month. The number of bankers reporting an increase in loan demand
equaled the number of bankers reporting a decrease. The prime rate
did not change at most banks, and changes in the near term are not
generally expected. Consumer loan rates either fell or remained
constant, and further changes in the near term are not generally
expected. Demand deposits, NOW's, Super-NOW's, MMDA's, and passbook
savings accounts tended to increase. IRA's, large CD's, and small
time deposits generally remained constant.