Beige Book Report: Kansas City
June 20, 1990
Overview
Modest growth still characterizes the Tenth District economy. Retail
sales continue to increase moderately, although new car sales have
been mixed. Both retailers and manufacturers are attempting to trim
inventories. Oil and gas drilling stabilized in May and remains
stronger than a year earlier. Residential construction activity has
generally been flat over recent months, as new home sales remain
slow. Mortgage demand at thrift institutions remains weak, while
loan demand at commercial banks is generally steady to up moderately
from a month ago. Plentiful spring rains have apparently ended the
region's two-year drought. The winter wheat harvest now getting
under way is expected to produce above-average yields.
Retail Sales
Most district retailers report moderate increases in sales over the
past year and over the past three months. Sales are expected to
improve slightly in the months ahead. Prices have changed in line
with cost increases and are expected to edge up further in coming
months. Most respondents are attempting to trim inventories. New
auto sales have slowed in some district states but have improved
slightly in others. Some dealers report tightening credit terms for
potential buyers. Most dealers continue to trim inventories because
they expect only modest sales in coming months.
Manufacturing
Most purchasing agents report relatively stable prices for inputs
over the past three months. Prices are expected to remain steady or
increase slightly during the next three months. Agents report no
problems in obtaining materials or workers and expect none for the
remainder of the year. Most firms are trimming inventory levels by
continuing to operate plants below capacity.
Energy
Oil prices remain about $4 below their level at the beginning of the
year. Despite setter oil prices, exploration and development
activity in the district remained stable in May and improved
compared with one year earlier. The district rig count increased
slightly from 263 in April to 266 in May, up 14 percent from May
1989.
Housing Activity and Finance
District housing activity is slightly down from a year ago and has
generally been flat over recent months. New home sales are slow, and
prices remain generally stable. Lumber prices are up because of
reduced cutting in the Northwest in recent months, but builders
expect lumber prices to stabilize. For the rest of the year, housing
starts and new home sales are expected to be similar to last year.
Most district savings and loans report deposit outflows over both the last month and the last year. Deposits are expected to stabilize soon. Demand for mortgage funds remains weak, and most respondents expect little improvement in upcoming months. Mortgage rates have been constant or up slightly at most institutions. There was no consensus on the future direction of mortgage rates—some respondents expect rates to rise while others expect rates to fall.
Banking
Most commercial bank respondents report that loan demand is up
moderately over the last month. Increased demand is reported in all
categories of loans: commercial and industrial, consumer,
residential real estate, commercial real estate, and agricultural.
None of the respondents report a change in their prime rate, and
none expect a change in the near term. Nor do most report a change
in consumer lending rates, although a few report lower rates.
Virtually none of the respondents expect a change in consumer rates
in the near term.
Changes in loan-deposit ratios and in deposit activity were mixed at district banks. IRA and Keogh accounts were generally up, while MMDAs were generally down.
Agriculture
Large amounts of spring rain across much of the district marked the
end of the drought that gripped large parts of the region during the
past two years. The plentiful rainfall has improved pasture
conditions and generally boosted prospects for the winter wheat
crop, but has delayed planting of spring crops in some areas.
Planting is about seven to ten days behind normal in Oklahoma and
three to four weeks behind normal in Missouri. Warmer weather will
be needed to promote crop development.
The district's winter wheat crop is generally in good condition, although continued wet weather has contributed to disease problems in some areas and could delay the wheat harvest. The wheat harvest has begun in Oklahoma end will progress north across the district through mid-July. Expected yields range from average to well above average, with record yields likely in much of Kansas.
Improved pasture conditions, due to the plentiful rains, ensure an adequate feed supply for cattle herds. Although plentiful forage supplies encourage herd expansion, feeder cattle prices remain exceptionally strong. As a result, herd expansion is occurring at a slow pace.