Beige Book Report: Kansas City
December 5, 1990
Overview
Continued strength in farm incomes and a modest improvement in the
energy sector are helping to sustain slow growth in the Tenth
District economy. High cattle and hog prices are the primary sources
of strength in farm incomes, and higher oil prices are spurring
exploration and development activity. Retail sales, including new
auto sales, however, remain soft. Slow sales are leading both
retailers and manufacturers to trim inventories. Despite slight
declines in mortgage rates, new home sales and housing starts are
weak. Loan demand at commercial banks decreased slightly last month,
with much of the decline due to lower demand for residential
construction loans and commercial real estate loans.
Retail Sales
District retailers report sales flat at best over the last year and
over the last three months. One retailer noted that he would be
thrilled if sales end up flat for the year. Sales strength is
limited to a few categories of goods such as apparel and outdoor
sporting goods. Sales of appliances and other big ticket items are
generally weak. Most respondents are trimming high inventory levels
and becoming more cautious about buying. One retailer remarked they
were not ready for a recession because they were loaded with
merchandise. While most respondents expect sales to be steady to
moderately improved through the Christmas season, they also expect
slower sales soon thereafter.
New auto sales are flat to down in most district states. Potential buyers in some areas are having difficulty getting loans as lenders become more selective. Most dealers are trimming inventories in the expectation of weak sales, while still trying to maintain stocks of the new models.
Manufacturing
Apart from petroleum products and fuel surcharges, purchasing agents
report only slightly higher input prices over the past three months.
Prices are expected to increase modestly over the next three months.
Agents report no difficulty in obtaining materials, and lead times
continue to shorten. Most firms are trimming inventory levels due to
lower than expected sales and continue to operate below full
capacity.
Energy
Sharply higher oil prices have begun to spur exploration and
development activity in the district. The average number of
operating drilling rigs in district states increased from 305 in
September to 325 in October, a level almost 7 percent higher than
one year ago. Despite this improvement, uncertainty about the
eventual outcome of the Middle East situation will moderate further
gains in drilling activity.
Housing Activity and Finance Housing starts are generally unchanged from last month, despite weak new home sales across the district. Expectations for sales are mixed, but starts are not expected to increase. Several builders report higher prices for wooden shingles and asphalt roofing. Availability of materials is not a problem, however.
Reports on deposit flows from savings and loan respondents are mixed, with results often dependent on locality and business strategy. Mortgage demand is down and is expected to worsen due to seasonal factors and a weakening economy. Mortgage rates have declined slightly over the last month and are expected to fall further in the months ahead.
Banking
Commercial bankers report total loan demand decreased slightly over
the last month. Much of the decrease was due to a lower demand for
residential construction loans and commercial real estate loans.
Demands for commercial, consumer, and agricultural loans were
steady, while home mortgage demand increased slightly over the last
month. Bankers report credit standards for loan approval unchanged
to somewhat tighter, with tighter standards generally due to a less
favorable economic outlook and pressures on banks' capital
positions. Respondents report no change in their prime rate over the
last month, but several bankers expect their prime rate to fall in
the near future. Although a few respondents reduced consumer loan
rates recently, most did not change their consumer rates in the last
month. Total bank deposits were stable to slightly lower over the
last month. Demand deposits, money market deposit accounts, and
small time deposits were stable to slightly down. NOW accounts and
large certificates of deposit were unchanged, while IRAs and Keogh
accounts showed some increase.
Agriculture
The harvest of most district crops is nearly complete, except for
Oklahoma's cotton harvest. Corn, soybean, and milo yields were
normal to slightly above normal in most of the district. Sugar beet,
potato, and onion yields in northern Colorado were disappointing. In
southwestern Oklahoma, peanut yields were excellent, and a large
cotton crop is expected.
The district's winter wheat crop is generally in excellent condition. After an excessively dry planting season in much of the district, plentiful moisture and warm weather have given the new crop a boost.
Crop income prospects for district farmers have weakened in recent months, but livestock income prospects remain bright. Crop prices slumped as the fall harvest season neared completion. Higher oil prices promise to boost crop production expenses and have encouraged farmers to purchase fuel, fertilizers, and other petrochemicals earlier than normal. Crop income subsidies have been cut back in the new government farm program, and participation in the program by district farmers may decline. High cattle and hog prices, however, continue to bolster incomes for district livestock producers.