Beige Book Report: Kansas City
January 27, 1988
Overview
Little improvement is apparent in the Tenth District economy in
spite of relatively high farm income in 1987. Christmas retail sales
were generally higher than a year earlier but lower than expected,
and new car sales are slow. Manufacturers' input prices continue to
rise moderately. If recent world oil market conditions continue,
some of the 1987 improvement in the district energy industry may be
eroded. Home mortgage demand and residential construction activity
both remain weak. Loan demand and deposits at commercial banks are
both up slightly. Agricultural banks report an improvement in
yearend loan repayment rates.
Retail Sales
Tenth District retailers report sales equal to or above, year-ago
levels, and unchanged or slightly improved over the past three
months. Christmas sales were generally higher than a year ago but
lower than expected. Sales of apparel, cosmetics, and other soft
goods are strong while durable sales are weak. Nearly all
respondents plan to trim inventories or hold them at present levels.
Expectations for future sales are cautiously optimistic and only
small price increases are anticipated in the next few months.
Automobile Sales
Automobile dealers generally report that sales were slow in
December. Although dealers desire leaner inventories, slow sales are
keeping inventories steady. Adequate financing is available for both
dealer inventories and customer purchases. Overall, dealers are
hopeful that 1988 sales will be near 1987 levels.
Purchasing Agents
Purchasing agents report that their input prices are moderately
higher than a year ago. The steepest price increases in the last
several months have been for steel-related inputs and further
increases are expected for these inputs in the near term. Most
materials are readily available, although quality steel materials
are reported to be in short supply. Respondents are generally
satisfied with current inventory levels and most report no unusual
bottlenecks in labor or plant capacity.
Energy
The inability of OPEC to agree on production quotas in December 1987
has caused world oil prices to weaken and become more volatile. If
these market conditions continue, some of the stability established
in the district's energy industry during 1987 could begin to erode.
The average weekly number of operating drilling rigs in the Tenth
District increased only slightly from 360 in November to 363 in
December, about 23 percent above the average weekly level a year
earlier but less than one-fourth its 1982 peak.
Housing Activity and Finance
Area homebuilders report that housing starts are below both last
year's and last month's levels. Multi-family construction is
expected to weaken further but single-family construction is
expected to stabilize. Most homebuilders report steady sales of new
homes. Respondents express no immediate or future problems regarding
materials prices, availability, or delivery times.
District savings institutions generally report that savings deposit inflows are somewhat above year-ago levels. Deposit inflows have changed little since November and are expected to improve slightly during the first quarter. Mortgage demand remains weak, although some respondents foresee a pickup in activity in the spring. Mortgage rates have been stable, with little change expected in the near term.
Banking
Respondents at district banks report slightly higher total loan
demand for the month. Demand for commercial and industrial loans and
consumer loans is up slightly, while demand for residential and
commercial real estate loans and agricultural loans is unchanged on
average. The prime rate remains unchanged among all respondents,
with only one respondent expecting a slight decline in the future.
Consumer loan rates are unchanged and expected to remain at current
levels. Total deposits rose slightly because of small increases in
the demand for conventional and super NOW accounts, demand deposits,
MMDAs, and small time deposits. Large CDs were down slightly, while
IRAs and passbook savings accounts were about unchanged.
Agriculture
Strong livestock prices, a good fall harvest and substantial
government payments produced relatively high farm incomes for 1987.
As a result, 1987 year-end loan repayment rates at agricultural
banks were generally high, showing some improvement over a year ago.
Some bankers also report that they expect borrowings for 1988 to be
down, as cautious farm borrowers are putting more cash earnings into
operations. Most agricultural lenders continue to look for sound
borrowers as loanable funds remain readily available and demand for
loans weakens.
Farm machinery sales are also beginning to reflect an improved farm income situation in the district. After two relatively stable years for farm incomes, some operators are now upgrading worn equipment. The used machinery market has shown more activity, but high prices and a cautious outlook are still keeping many farmers out of the new equipment market.
Although livestock prices have contributed significantly to the strength in farm income, there has not been much expansion in district livestock operations. Feedlots in the region remain full, but cow/calf operators are reluctant to hold back high priced heifers to increase breeding herds. High cattle prices have also forced the price of replacement animals up, causing some stocker cattle operations to actually reduce herds. Most district hog growers have been running at capacity, but there has been little facilities expansion. The recent downturn in hog prices has not yet had a visible effect on district hog operations.