Beige Book Report: Kansas City
August 2, 1988
Overview
The economy of the Tenth District continues to show slight
improvement. Retailers, including auto dealers, report steady to
slightly higher sales. In the manufacturing sector, lead times for
some materials are increasing and some firms report problems finding
certain kinds of skilled labor. Housing starts, however, remain at
or below last year's levels and lower oil prices are expected to
reduce drilling activity. Effects of the drought vary widely across
the district with some farmers in drought-free areas harvesting
normal crops and benefiting from higher crop prices. Neither loan
demand nor deposits have changed much at district commercial banks
over the past month, while savings inflows to thrift institutions
have risen in recent months.
Retail Sales
Retailers generally report sales steady to slightly higher compared
with a year earlier, as well as with a few months ago. Most
respondents have been trimming their inventories recently, and are
generally satisfied with current inventory levels. Retailers
generally expect only modest sales increases in the near term, apart
from seasonal items
Automobile Sales
Automobile dealers report that sales are steady to slightly higher
over the last month. Adequate financing is available for qualified
buyers and for dealer inventory purchases. The sales outlook has
generally improved since the first of the year.
Manufacturing
Input prices have risen moderately from a year ago, but increases
have tapered off some in recent months. The recent slowing in price
increases is expected to continue in the next few months. Materials
are generally available, but lead times have risen. Steel inputs
have become harder to get. Most respondents have been expanding
inventories, but now plan some trimming. Some firms report problems
finding enough skilled labor, particularly machinists.
Energy
Recent weakness in oil prices is eroding some of the stability in
the district's energy industry. High output from OPEC producers
caused domestic crude oil prices to fall below $15 a barrel in mid-
July. While the level of exploration activity remained stable in
June, and slightly above a year earlier, the lower oil prices in
July and the outlook for continued soft prices are expected to cause
some decline in the district rig count.
Housing Activity and Finance
Area homebuilders report that housing starts are at or below last
year's levels. Relative to a month ago, however, housing starts have
varied across the district depending on local conditions. New home
sales are steady to weak. Most respondents expect housing market
performance to remain steady or improve slightly. In addition, most
respondents report no problems with construction materials
availability or delivery times. A lumber wholesaler reports weak
sales compared with both a year earlier and three months ago.
Most savings and loan respondents report that savings deposit inflows have risen in recent months, reversing the weakness observed earlier this year. Inflows are expected to increase slightly in the near future. Mortgage demand has been solid, but most respondents expect weaker demand in the fall. Mortgage rates have been stable to slightly higher, and some respondents expect a slight increase in the second half of this year.
Banking
District commercial bankers report steady loan demand over the past
month. Consumer loan demand has shown the greatest strength, while
demands for other types of loans have, on balance, been stable. Most
respondents increased their prime rates by half a percentage point
on or shortly after July 14, following a period of steady rates in
June and early July. A majority of the respondents expect no further
movement of the prime rate in the near future. Consumer loan rates
have been relatively stable.
Deposits have changed little at Tenth District commercial banks over the past month. Although small time deposits increased at more than half of the responding institutions, demand deposits were flat to slightly down. Other deposits were generally unchanged.
Agriculture
The effects of this summer's drought vary widely across the
district. The winter wheat crop matured before the drought worsened,
and its harvest is nearly complete with yields and quality normal to
above normal. Plentiful rainfall in some parts of the district—especially Nebraska and western Oklahoma—have provided excellent
growing conditions for crops and range conditions for cattle.
Farmers in these areas are likely to harvest normal crops and
benefit from prices forced higher by the effects of the drought
elsewhere.
In those areas most severely affected by the drought, however—especially southeastern Oklahoma, eastern Kansas, and much of Missouri—non-irrigated row crops are under severe stress, irrigation casts are rising, and range and pasture conditions are deteriorating. In some areas, non-irrigated corn yields may be reduced by half or more. Ranchers are providing cattle herds supplemental feedstuffs where pastures have been scorched. Although the drought has not yet forced the large scale liquidation of district cattle herds, net returns to cattle ranchers and feeders are likely to be squeezed by lower cattle prices and sharply higher feed costs.
Effects of the drought on farm borrowers and lenders will vary widely across the district. However, the general improvement in the financial positions of farm borrowers and their lenders during the last two years will likely allow most to withstand this summer's drought.