Beige Book Report: Kansas City
August 3, 1987
Overview
Economic activity in the Tenth District is continuing at a sluggish
pace. Retail sales have stabilized over the past three months, but a
few retailers report declines. Auto sales are steady to slightly
stronger in July. Retail prices have remained steady, although
manufacturers' purchasing agents continue to report moderate
increases in input prices and continue to expect further slight
increases. The housing industry in Oklahoma and Colorado is
depressed, while other parts of the district report that housing
starts are near last year's levels. The energy sector has responded
only slightly to higher oil prices. Deposits and loan demand at
district banks show little change. Winter wheat yields in the
district were about average. Strong prices have brought little
expansion in the livestock sector.
Retail Sales
District retailers report mixed sales, with half the respondents
reporting sales above year-ago levels and half reporting sales below
year-ago levels. Sales have mostly stabilized over the past three
months, but a few retailers report declines. Prices have been
generally constant over the past three months, and retailers expect
this trend to continue for the near future. After some recent
trimming, inventories are considered to be satisfactory. Most
respondents express optimism for future sales.
Automobile Sales
Automobile dealers generally report that auto sales are steady or
slightly stronger in July. Inventories are generally considered
tight, and some dealers report difficulty obtaining automobile due
to end-of model-year conditions. Dealers expect auto sales to remain
constant or improve during the remainder of 1987.
Purchasing Agents
Purchasing agents report that input prices are moderately higher
than last year and are expected to increase slightly during the
remainder of 1987. Most agents report that material are readily
available, although one purchasing agent reports problems obtaining
steel. Steel will likely become easier to obtain during the
remainder of the year, and few other problems obtaining materials
are expected during 1987. Inventory levels are satisfactory.
Energy
Firming oil prices have brought some stability to the district's
energy industry. A strong rebound in activity remains elusive,
however, despite recent domestic spot prices in excess of $22 per
barrel. Exploration and development activity in the district remains
generally flat. The average weekly number of operating drilling rigs
in the Tenth District fell slightly from 238 in May to 232 in June.
This number compares favorably with the 200 drilling rigs operating
in the district a year earlier, but remains less than one-sixth of
the record set in 1982.
Housing Activity and Finance
Strength in the homebuilding industry varies widely across the
district. Conditions in Oklahoma and Colorado are particularly
depressed; other parts of the district report that housing starts
are near last year's levels. Builders expect that the trends already
established this year will continue. New home sales are generally
steady, except for sluggishness in Colorado. Prices are generally
stable. No problems are reported with either the availability or
delivery of housing materials. Materials prices are stable, or up
only slightly.
Deposit growth at Tenth District savings institutions is reported weak for the first six months of 1987. More recently, there has been a slight improvement in savings inflows at institutions that have increased rates to levels comparable with commercial banks. Demand for mortgage funds is down, but respondents hope for slight improvement over the remainder of 1987. Mortgages rates have fallen off a little due to slack demand. Rates are expected to remain at about their current levels for the rest of 1987.
Agriculture
The wheat harvest is nearly complete in Oklahoma, Missouri, and
Kansas and is well under way in the northern areas of the district.
Yields appear to be about average, except for disappointing yields
in some areas of Kansas and Oklahoma. There appears to be sufficient
storage for this year's wheat crop.
The corn, milo, and soybean crops are doing well throughout the district. Most district states have received good moisture and expect excellent harvest this year. There is some concern that the fall harvest may meet with isolated storage problems.
Feedlots generally remain full in the Tenth District as beef prices remain strong, but no expansion in capacity is reported. There are only scattered reports of herd expansion, as operators are generally holding steady. Hog prices remain high, but bankers report continuing fear of a downturn. Consequently, operators are somewhat hesitant to expand and bankers are reluctant to finance new facilities or large increases in inventories. There are, however, a few reports of small inventory increases.
Banking
Reports of total loan demand and total deposits at Tenth District
banks are evenly divided: one-third of the respondents report that
loan demand and deposits are down, one-third report they are
unchanged, and one-third report they are up. This pattern is
consistent for all categories of loans except for some general
decline in commercial real estate loans. As with loan demand, there
are scattered reports of changes, both up and down, in each category
of deposit, but the consensus clearly reflects no change in
deposits. Respondents report no change in their prime rates, and
none expect any change in the near term. Virtually all the
respondents report no change in their consumer loan rates, and,
again, no change is expected.