Beige Book Report: Kansas City
October 27, 1987
Overview
Economic activity in the Tenth District is mixed, with some
sluggishness in retailing and housing, some improvement in
agriculture and the energy sector, and see evidence of strength in
the industrial sector. Retail sales have been flat in recent months,
and are expected to continue so. Manufacturers' input prices are
increasing significantly and see inventory accumulation is
occurring. Limited improvement continues in oil exploration and
development activity. Housing starts are flat and are expected to
slow in the near future, developments that are paralleled in the
demand for mortgage funds. Loan demand at commercial banks continues
weak. Crop conditions and harvests are generally good, and farm loan
paydowns are expected to be above normal in the fourth quarter.
Retail Sales
While district retailers generally report sales above year-ago
levels, sales over the past three months have been mostly flat. Soft
goods appear to be selling somewhat better than hard goods. Prices
are reported as generally stable with this trend expected to
continue into the near future. Inventories are considered to be at
satisfactory levels with a few respondents rising their inventories.
Most retailers expect sales to show little growth in the near
future.
Automobile Sales
Automobile dealers report that September sales were steady to
slightly weaker compared with August and a year earlier. Inventories
are expanding as dealers receive 1988 models. Overall, dealers are
hopeful that sales will be stable or up slightly during the
remainder of 1987.
Purchasing Agents
Purchasing agents report that prices have generally increased
significantly over year-earlier levels. Most agents report increases
in the past three months and all agents surveyed expect general
price increases for the next three months. Most materials are
readily available, but some agents report longer lead times. Though
inventory levels are satisfactory overall, some increases are being
made in response to seasonal factors and general market conditions.
Energy
Although a strong rebound in the district's energy industry is not
likely to occur soon, some significant improvements in exploration
and development activity has been observed in recent weeks. The
average weekly number of operating drilling rigs in the Tenth
District increased from 311 in August to 351 in the first three
weeks of September, 63 percent above the average weekly level
recorded in September 1986. Nevertheless, the rig count in the
district remains less than one-fourth its 1982 peak.
Housing Activity and Finance
District homebuilders report that housing starts are at or below
last year's levels and are generally down from a month ago. Single-
family home construction remains flat while multifamily unit
construction has decreased. Looking ahead, homebuilders expect
housing starts to slow further. Most homebuilders report that new
home sales are down and inventories are steady. Builders report that
materials prices remain generally unchanged or lower due to
competition among suppliers and they expect no problems with
material availability, delivery, or price increases.
Deposit growth at Tenth District savings institutions is reported down from a year ago, although respondents believe that aggressive rate increases could attract deposits. Any change in deposit growth would depend on different pricing. Demand for mortgage funds has fallen sharply and is expected to be sluggish during the remainder of 1987. Mortgage rates, which have risen substantially, are generally expected to increase slightly during the rest of 1987.
Banking
Respondents at Tenth District banks report total loan demand as
either down slightly or unchanged during the month. Demand weakened
for consumer, commercial and industrial, and residential real estate
loans. Respondents reporting reduced demand for commercial real
estate loans were about balanced by respondents reporting increased
demand for these loans. Demand for agricultural loans held steady.
Most respondents report having raised prime rates and expect to
increase them further in the coming months. Responses concerning
recent changes in consumer loan rates were split evenly between no
change and slight increases. Most respondents expect to make no
change in consumer loan rates in the coming months. Balances in all
types of deposit accounts except large CD's generally remained
constant, while a number of respondents report growth in large CD's.
Agriculture
The fall harvest and winter wheat seeding are progressing well
across most of the Tenth District. The corn and soybean harvests are
nearing completion in the southern parts of the district with a few
exceptions. Good conditions have prevailed in the northern areas of
the district as the harvests reach the half-way mark. Corn and
soybean yields appear to be close to normal or a little above
normal. The milo harvest is also under way, and excellent yields are
expected. Winter wheat seeding is almost complete in district
states. Good moisture and warm weather have prevailed throughout
most of the district and good stands of wheat are appearing.
Bankers expect farm loan paydowns in the fourth quarter to be above normal. Strong crop yield prospects contribute to this expectation, but the increased paydown levels are primarily attributed to livestock producers. Increased profits and fears that livestock prices may soon weaken have encouraged ranchers to pay down debt. In addition, continued high feeder cattle prices have discouraged operators from buying replacement cattle.