Beige Book Report: Kansas City
January 24, 1990
Overview
The Tenth District economy continues to grow modestly. Christmas
sales were near expected levels at most retailers, but continued
sluggishness of auto sales has resulted in an unwanted buildup of
dealer inventories. With most manufacturing plants operating below
capacity, inputs are generally available with shorter lead times and
at only slightly higher prices. Housing starts have declined and
mortgage loan demand remains weak at district thrift institutions.
Continued improvement in resource industries is a bright spot for
the district. Oil and gas drilling activity is increasing, and
agriculture's strong financial performance is encouraging expanded
farm lending activity at commercial banks.
Retail Sales
District retailers report steady to higher sales over a year
earlier, but sales have been mixed over the last three months.
Demand is especially strong for women's apparel, while housewares
and furniture sales are somewhat weak. Christmas sales nearly met
expectations and exceeded year-ago levels for most retailers. Prices
are expected to stabilize in the near future, and inventory levels
appear satisfactory. Automobile dealers report sluggish sales of new
vehicles during the last month. Dealers are trying to trim large
inventories in anticipation of slower sales over the coming months.
Manufacturing
Purchasing agents report input prices unchanged from or slightly
higher than a year ago. Prices have increased on only a few items
over the last three months, and no price changes are expected over
the next three months. Inputs are generally available with shorter
lead times. Many firms are planning to trim inventories in the
months ahead. Most plants are operating below full capacity, with
few reports of skilled labor shortages.
Energy
Exploration and development for oil and gas in the district
continues to improve even though the recent increase in oil prices
is not expected to persist. The average number of active drilling
rigs in the district increased from 326 in November to 336 in
December. Six consecutive months of increase have boosted drilling
activity 25 percent above the level a year ago.
Housing Activity and Finance
District housing starts have decreased slightly from a year ago and
from last month. Homebuilders expect starts and sales this year to
be about the same as last year. New home sales and prices have
generally been steady, while inventories of unsold homes are down
slightly. Builders expect no problems obtaining materials. District
savings and loan institutions report flat or negative net deposit
flows over the last month. In almost all cases, net deposit flows
were more favorable than a year ago. Most respondents expect no net
change or a slight increase in deposits in the near term. District
thrift institutions report weak mortgage demand and steady to
slightly lower mortgage rates. Expectations for future mortgage
rates are mixed.
Banking
Most district commercial banks report unchanged loan demand over the
last month although some banks note a slight increase in demand.
Increased demand is most apparent for commercial and industrial
loans and consumer loans. Demand for other types of loans is
generally unchanged. Among responding banks, loan-to-deposit ratios
are about the same as a month ago but somewhat lower than a year
ago. Deposit behavior varies considerably among responding banks,
with slightly more banks reporting increases in deposits than
reporting decreases. Demand deposits and NOW accounts show the
greatest strength.
Agriculture
Bitterly cold December temperatures and continued dry weather have
heightened concerns over the condition of the winter wheat crop
across much of the Tenth District. Dry growing conditions during the
fall and early winter limited root development of the wheat crop in
several states and left the crop vulnerable to damage by cold
temperatures and wind erosion. In Wyoming, however, wheat fields are
protected by a deep snow cover. Although much of the district's
wheat crop is under stress, most of the crop should develop
satisfactorily if normal weather conditions return.
Despite severely cold temperatures in late December, most district cattle feeders marketed cattle on a normal schedule. Faster weight gains during unseasonably warm temperatures early in December helped compensate for the slower weight gains caused by colder temperatures later in the month. High cattle prices have boosted feeding margins and encouraged some district producers to feed cattle to heavier weights than usual.
Strong returns from both livestock and crops allowed most district farmers to pay off 1989 operating loans at a rate similar to that of a year ago. In parts of Oklahoma and Kansas, however, continued drought and an early frost cut crop yields and boosted carry-over farm debt. Nevertheless, most district banks have little unwanted carry-over debt and are actively seeking new farm loan accounts to increase loan-deposit ratios. In general, agriculture's strong financial performance in recent years has encouraged district bankers to expand farm lending activity.