Beige Book Report: Kansas City
September 19, 1990
Overview
The Tenth District economy is growing slowly. Retail sales have
weakened over the last three months, with auto sales slumping as
some potential buyers are finding it difficult to obtain financing.
But rural business conditions generally continue to reflect the
improvement in the farm economy over the past three years, an
improvement that is expected to continue as bumper crops are
harvested this fall. Retailers are trimming inventories, while
manufacturers are trying to maintain or reduce their stocks. In the
energy sector, drilling activity has slipped in recent months but
remains above the level of a year ago. Housing starts are up from
last month despite a slight increase in mortgage rates.
Retail Sales
Most district retailers have been trimming inventories in light of
weakening sales over the past three months, especially in July.
Expectations are mixed for sales over the next three months, while
prices are expected to change little. New auto sales have dropped in
most district states over the last month and are expected to drop
further during the rest of the year. Some potential buyers are
having financing problems due to credit tightening. Most dealers are
trimming inventory levels to make room for new models.
Manufacturing
Purchasing agents report higher input prices from a year ago but
generally stable prices over the last three months. Some prices have
risen recently due to the Gulf crisis as fuel price increases have
pushed up transportation costs. Agents generally expect more
increases in input prices in the next three months. Agents are
having little difficulty in obtaining inputs and most expect few
problems for the rest of the year. Most firms are maintaining or
reducing inventories.
Energy
Despite significantly higher oil prices since Iraq invaded Kuwait,
exploration and development activity in the district has declined
recently. The district rig count fell from 303 in July to 282 in
August. Nonetheless, the rig count remains about 9 percent above the
year-ago level. Industry observers do not anticipate much
improvement in drilling activity unless oil prices remain above $25
a barrel for an extended period and natural gas prices are
eventually pulled up by higher oil prices.
Housing Activity and Finance
Housing starts in most areas of the district are up from last month,
though still below levels a year ago. Sales of new hones remain
mixed. Several builders report increases in lumber costs and a
shortage of labor. The outlook for new home sales is mixed but
biased toward a slowdown for the remainder of the year.
Most district savings and loan respondents report net outflows of deposits over both the last month and the last year. Mortgage demand is constant to down slightly and is expected to decline over the next three months due to seasonal factors. Mortgage rates have risen slightly at most institutions but are expected to decline slightly in the near future.
Banking
Commercial bankers report that total loan demand rose moderately
over the last month. Demand increased for commercial and industrial
loans, consumer loans, and home mortgages, while demand for
commercial real estate loans and agricultural loans decreased. Loan-
to-deposit ratios did not change over the last month but are down
slightly from a year ago. Total deposits increased moderately over
the last month, with increases in demand deposits, NOW accounts,
MMDAs, and small time and savings deposits. Large certificates of
deposit, IRAs, and Keogh accounts were unchanged. Bankers report no
major changes in their prim rates or consumer lending rates, and few
expect any changes in the near future. About half of the respondents
report that other loan terms—for example, collateral requirements
and loan covenants—have recently been tightened or are being
reviewed for possible future tightening. Although a few rural
bankers report that credit standards have been tightened due to
regulatory pressures or concerns about an economic slowdown, most
indicate that credit standards for small businesses have not
changed.
Agriculture
District crops are generally in excellent condition. Bumper crops of
corn, soybeans, and milo are expected in Kansas, where a record
wheat crop was harvested earlier this year. The Oklahoma cotton and
peanut crops could be the best in years. Development of late-planted
crops in eastern Kansas, Missouri, and Nebraska, however, is one to
three weeks behind normal, making crops in those areas vulnerable to
substantial yield reductions if an early frost occurs.
Higher fuel prices have not yet affected district farming activities, although harvesting costs will be pushed up. Prices of some fertilizers, pesticides, and other petroleum-based products may also rise if petroleum prices remain high. If this happens, farmers will reduce their use of these products next spring.
Business conditions in rural communities across the district generally reflect the rebound in the farm economy over the past three years. Still, the improvement in the district's Main Street businesses has not been uniform. Small businesses continue to struggle in some rural communities, while both established and new businesses thrive in others.