Beige Book Report: Kansas City
May 1, 1991
Overview
Growth in the Tenth District economy has increased slightly, due to
modest improvements in retail sales and housing activity. Continued
strength in manufacturers' export sales and in livestock prices has
also helped the district economy. The advance in growth, however,
has been limited by sluggish capital spending on district farms and
slower drilling activity in district oil fields.
Retail Sales
Retail sales have improved slightly over the past three months. Most
of the gain has occurred in apparel sales, while home furnishings
sales continue to languish. Most retailers are satisfied with
inventory levels and are continuing to keep them low. Because
retailers expect no further improvement in sales, prices and
inventories are expected to remain flat.
Auto sales have improved slightly in most district states over the last month. Although adequate dealer financing is available, some potential buyers are having difficulty getting loans. Most dealers have been trimming inventories, but expected sales increases could soon lead to rising inventories.
Manufacturing
Purchasing agents report moderate increases in input prices. Agents
expect prices to continue rising even though materials are readily
available. Manufacturers generally continue to trim inventories and
operate below capacity. Export sales have picked up in recent
months, and some exporters expect further increases during the
remainder of year.
Energy
Stable oil prices since the end of the Persian Gulf conflict are
fostering continued development of existing reserves but are not
stimulating much exploration. The average number of operating
drilling rigs in district states fell from 263 in February to 256 in
March. Nonetheless, the district rig count remained about 13 percent
above its year-ago level. Some district oil field supply firms
expect to benefit from the rebuilding of Kuwait.
Housing Activity and Finance Housing starts over most of the district were up from the previous month due in part to warmer weather. Starts are above year-ago levels for most builders in the district and are expected to end the year slightly higher than last year. Construction materials are readily available, and prices are steady. New home sales are improving, but prices remain stable. Builders expect small gains in sales for this year compared with last year.
Reflecting the pickup in home sales, mortgage demand has increased in the district. Commitments have increased recently and should continue increasing. Mortgage rates have stabilized and are expected to remain flat over the next several months.
Banking
Loan demand at district banks was unchanged or higher last month.
Demand for commercial and industrial loans, consumer loans, home
mortgage loans, and home equity loans was higher at several banks.
In contrast, demand for construction loans continued to fall. Demand
for commercial real estate loans and agricultural loans was mixed.
Most banks report unchanged loan-deposit ratios during the past
month.
The prime rate and consumer lending rates are unchanged, and banks do not expect a near-term change in lending rates. All banks reported terms of lending unchanged from last month. Deposit behavior varied across reporting banks, but the largest number of banks reported no change in total deposits during the past month. Demand deposits and Large CDs were down slightly. In contrast, NOW accounts, MMDAs, IRA and Keogh accounts, and small time and savings deposits were up.
Agriculture
Warm weather has encouraged rapid development of the district's
winter wheat crop. The crop is generally in good condition in most
areas, although dry growing conditions are beginning to affect the
crop in parts of Kansas and Oklahoma. Tillage for spring crops is
underway throughout the district. Corn planting has begun in
Missouri, but planting of corn and milo in the western parts of the
district has been delayed by dry soil conditions.
Despite the continued strength in cattle prices, little expansion in district breeding herds is occurring. Many young cattle that might otherwise be added to breeding herds are being fattened for slaughter in feedlots. Most district lenders are not encouraging ranchers to expand their herds. Instead, lenders are encouraging ranchers to maintain the size of their herds by balancing the number of cattle held for herd replacement with the number sold for slaughter.
The pace of capital spending by district farmers has increased only slightly from the sluggish pace last fall. Spending by crop producers is somewhat more restrained than spending by livestock producers, reflecting the continued divergence in crop and livestock incomes. Low crop prices and smaller government payments are holding down crop incomes. Strong livestock prices, however, continue to buoy livestock incomes.