Beige Book Report: Kansas City
June 19, 1991
Overview
The Tenth District economy is growing moderately due to continued
strength in farm incomes and increased housing starts. Revival of
home construction is reflected in higher demand for home mortgages;
demand for consumer and home equity loans is also up. Growth in
economic activity and in loan demand has been limited, however, by
lackluster retail sales and further declines in drilling for oil and
gas.
Retail Sales
Retailers report that sales have generally held steady over the last
three months. Most respondents expect sales to remain flat through
the summer, as consumer confidence remains shaky in some areas.
Appliance and apparel sales are lagging, while seasonal lawn and
garden sales are strong. Some retailers have raised prices slightly
to cover higher wholesale costs, but prices are expected to change
little during the summer. Respondents are satisfied with inventory
levels and plan to continue keeping tight control over stocks.
Auto sales have been mixed in the last month, but dealers expect sales to improve during the rest of the year due to lower interest rates and improved economic conditions. Dealer financing is available in most district states, though potential buyers continue to have some difficulty getting loans. Dealers are either trimming or maintaining inventories.
Manufacturing
Purchasing agents report no increase in input prices over the last
three months and expect prices to remain steady over the near term.
Materials are still readily available, with no problems anticipated
for the rest of the year. Most manufacturers continue to trim
inventories and operate below capacity. Export sales are steady for
most manufacturers. A few, however, report stronger foreign sales. A
maker of buses and ambulances, for example, reports booming export
sales to Canada, Latin America, and the Pacific Rim.
Energy
High OPEC production is keeping oil prices relatively stable. As a
result, producers are developing existing reserves but avoiding
exploration. The average number of operating drilling rigs in
district states fell from 237 in April to 224 in May. This dip
caused the district rig count to fall about 16 percent below its
year-ago level.
Housing Activity and Finance
Housing starts are up from last month and generally higher than a
year ago. Most builders expect starts to rise somewhat further
during the rest of the year. New home sales continue to improve,
helping reduce inventories of unsold homes. Prices for new homes are
also up moderately. Some builders expect higher sales this year than
last, but others are less optimistic. Construction materials are
readily available, but some builders report problems finding
qualified workers.
Deposit flows at thrift institutions have been mixed over the last month. Deposits are expected to remain flat or increase moderately over the near term. Mortgage demand is generally stronger and commitments are up. Mortgage rates have been stable to down slightly and are expected to remain unchanged or drop slightly during the next several months.
Banking
Loan demand was unchanged at district banks last month, due to
offsetting changes in several loan categories. Demand for commercial
and industrial loans was unchanged to lower at most banks. But
demand for consumer loans, home mortgages, and home equity loans
increased. The demand for commercial real estate loans and
agricultural loans was mixed. Most banks reported no change in their
loan-to-deposit ratios over the last month.
Most banks have not changed their prime rates, but a few cut this key lending rate in recent weeks. Others expect a prime rate cut in the near future. Most banks did not change their consumer loan rates or other lending terms. Deposits were stable at district banks during the last month.
Agriculture
The district winter wheat crop is expected to be average, but
conditions vary widely. Yields are expected to be below normal in
parts of Oklahoma, Kansas, and Missouri but above normal in parts of
Nebraska. Harvest has begun in Oklahoma and southern Kansas and will
move north through the district during the next two months.
Wet weather has hampered the planting of spring crops in the district. Most of the district's corn crop has been planted, but planting of soybeans and grain sorghum has been delayed in parts of Missouri, Kansas, and Nebraska.
Farm income, while down from last year, remains at a high level. Strong cattle prices continue to reduce the impact of weak crop prices on district farm incomes. Cattle prices may drop later this summer as an unusually large number of cattle in district feedlots go to market. Prices are expected to rebound quickly, however, as the inventory of cattle on feed returns to a more normal level.