Beige Book Report: Kansas City
March 14, 1990
Overview
The Tenth District economy is still growing modestly. Retail sales
continue to improve, although new car sales remain sluggish in some
district states. Manufacturing plants are operating below capacity,
lessening pressures on materials input lead times and prices. While
housing starts vary across the region, mortgage loan demand remains
weak at district thrift institutions. At district commercial banks,
loan demand is generally constant to down slightly. Agriculture
continues to lend support to the district economy, especially
through strength in incomes of livestock producers.
Retail Sales
District retailers report higher sales over a year earlier and
steady to improving sales over the last three months. Demand is
especially strong for apparel and housewares. Most retailers expect
sales to improve further during the coming months. Prices generally
have been fairly stable over the last three months and are expected
to remain so or rise slightly in the next few months. Retailers are
satisfied with their inventories and expect to keep them at current
levels. New auto sales remain sluggish in some district states but
have improved in others. Some dealers report tightening credit terms
both for inventories and for potential buyers. Most dealers continue
trimming inventories in expectation of flat to slightly lower sales
in the coming months.
Manufacturing
Most purchasing agents report input prices only slightly higher than
a year ago. Prices have increased on a few items in the last three
months, but no major price changes are expected over the next three
months. Materials inputs are readily available and lead times are
generally unchanged. Most firms continue to try to trim their
inventories. Plants are operating below capacity, with no reports of
labor shortages.
Energy
After six consecutive months of increase, exploration and
development for oil and gas in the district declined in January. The
average number of active drilling rigs in the district decreased
from 337 in December to 298 in January. This mostly-seasonal decline
caused the district rig count to fall about 3 percent below its year
ago level.
Housing Activity and Finance
Residential construction activity varies widely across the district,
but recent increases are partly attributable to unseasonably mild
weather. Most home builders expect housing starts to be flat or up
slightly this year, with the behavior of mortgage rates the big
question mark for the industry. Construction materials are readily
available with few reports of price increases. Most district savings
and loan respondents report that deposits remained unchanged or
declined over the last month. In most cases, however, net deposit
flows were more favorable than a year ago. Most respondents expect
no change or a slight fall in deposits in the near term. Mortgage
demand is weak at most institutions and is not expected to improve
significantly. Mortgage rates have remained steady to slightly
higher, and expectations for future mortgage rates are mixed.
Banking
District commercial banks report loan demand unchanged or down
somewhat over the last month. Commercial and industrial loans,
construction loans, and commercial real estate loans were weak.
Demand for other types of loans was generally unchanged, except for
a higher demand for mortgage loans at several banks. Most banks
report loan-deposit ratios unchanged from last month, but higher
than a year ago. Most banks also report unchanged prime and consumer
lending rates, and do not expect to change these rates in the near
term. Deposit behavior was mixed at responding banks, with about
equal numbers reporting higher, lower, and unchanged levels of total
deposits. Most banks report increases in demand deposits, and
decreases or no change in NOW accounts. MMDAs, small time deposits,
and large CDs generally increased or remained unchanged, although
several banks report declines in large CDs.
Agriculture
Recent rains have improved the condition of the district's winter
wheat crop. Soil moisture reserves have been partially replenished,
but more moisture will be needed soon to ensure development of the
crop. Despite some early winter-kill damage in Oklahoma and wind
damage in Wyoming, near-normal wheat yields are expected in most
parts of the district.
Spring credit reviews reveal greater strength in farm incomes for livestock producers than for cash grain farmers. Dry growing conditions lowered dryland crop yields and increased irrigation costs for grain producers. Reduced yields, smaller government payments, and lower crop prices combined to lower cash-grain income. Low feed costs and high livestock prices, however, bolstered income for livestock producers. Ranchers have postponed herd rebuilding in favor of selling feeder cattle to feedlot operators at high prices. While dry weather has limited pasture development in parts of the district, cheap grain and mostly plentiful forage supplies have reduced feed costs for most cattle producers.