Beige Book Report: Kansas City
June 21, 1989
Overview
The pace of economic activity in the Tenth District remains
relatively slow. Retail sales continue to improve, but new car sales
are soft. Manufacturers' input prices are still rising, and
availability is not a problem. Drilling activity, though modestly
higher than in March, is still below a year earlier. Housing
construction and home sales are relatively weak, and mortgage demand
is low. Loan demand at commercial banks is flat to up slightly, and
deposits are somewhat higher. The winter wheat crop will fall well
short of normal, while prospects for spring crops depend on timely
rainfall.
Retail Sales
Most merchandisers report retail sales performance has improved from
a year ago and over the last three months, and they expect some
additional improvement the rest of the year. Some retailers report
price increases that reflect higher costs, and they expect further
price increases in the future. Most respondents are satisfied with
inventory levels and do not expect to make any changes. Automobile
dealers generally report soft sales over the last month. Adequate
dealer and customer financing is available, with some very
attractive customer financing. Most dealers are trying to trim
inventory levels because of soft sales. Sales are expected to
continue at about their current pace.
Manufacturing
All respondents report input prices are higher than a year ago and
three months ago. Most respondents expect little change, however,
over the next three months. Firms report no difficulties in
acquiring materials, and most anticipate no future problems with
availability; some report longer lead times, however. Inventory
levels are generally satisfactory. Most plants are operating close
to full capacity, but no bottlenecks or labor shortages are
reported.
Energy
While the recent firming in oil prices appears to have helped the
District's energy sector, the industry remains cautious due to
uncertainty about the implications of OPEC's recent meeting. After
increasing sharply from only 211 in March, the average number of
active drilling rigs in the district fell from 241 in April to 234
in May. Exploration and development activity thus stands about 10
percent below the level of a year earlier.
Housing Activity and Finance
District housing starts are down from one year ago, and most
homebuilders report unchanged activity from a month earlier. Single-
family construction continues to exceed multi-family construction.
New home sales are down slightly, and prices remain about stable.
Most respondents are uncertain about future activity because of
uncertainty about future interest rates.
Most respondents from district savings and loan institutions report net outflows of deposits over the last month. Net deposit flows are generally similar to a month earlier, but are mixed relative to a year ago. Respondents expect deposits to be steady or lower in the near term. Mortgage demand is low in most areas and is generally expected to remain low. Some respondents attribute low mortgage demand and depressed real estate prices to sales of foreclosed properties by HUD. Nearly all respondents report slightly lower mortgage rates, but most expect fairly stable rates in the coming months.
Banking
District commercial banks report widely varied behavior of loan
demand last month, with more respondents reporting increases in loan
demand than decreases. While responses varied for all loan
categories, some increase in consumer and home mortgage loan demand
was apparent, as was a decrease in commercial real estate loan
demand. District banks have begun to join in the recent reduction of
prime lending rates, but almost no banks report changes in their
consumer lending rates. Deposits grew last month, with the increase
concentrated in large time deposits and small time and savings
deposits: transactions deposits were constant or decreasing at most
responding banks.
Agriculture
Crop growing conditions are a major concern in the Tenth District.
Despite widespread rainfall during the past month, the district's
winter wheat harvest is expected to be much smaller than normal.
Wheat yields in southwestern Oklahoma, where the harvest is already
nearing completion, are expected to be only two-thirds of normal.
Wheat yields in Kansas and Nebraska are generally expected to range
from a fourth to a half of normal, and severe drought in some areas
has caused the wheat crop to be abandoned.
The small wheat crops likely to reduce incomes of many district businesses, including grain elevators, where storage income has already been depressed by low grain inventories. Railroad cars used to transport grain sit idle in parts of the district. The financial condition of grain-dependent businesses now appears to depend or a more normal harvest of other crops.
Recent rainfall has improved prospects for pastures in spring- planted crops. Planting of spring crops in the district is nearly complete and. last month's rainfall improved growing conditions. Soil moisture reserves are low, however, and prospects for these crops depend on the amount and timeliness of rainfall during the rest of the growing season. Dry weather has produced poor grazing conditions throughout the district. Diminished feed supplies are leading some ranchers to sell more cattle than normal to reduce the size of their herds. Still, few herds have been completely liquidated as a result of feed shortages.