Beige Book Report: Kansas City
September 18, 1991
Overview
Economic conditions in the Tenth District continue to improve
modestly. New home sales have increased, auto sales have picked up,
and other retail sales remain steady. Most firms are maintaining or
trimming inventories, and prices generally are changing little.
Agriculture and energy may be contributing less to district growth
than in the past few months, however. Drilling for oil and gas is
off slightly, cattle prices have dropped, and hot, dry weather has
reduced expected crop yields.
Retail Sales
Most retailers report sales unchanged from last month and down from
a year ago. Retailers generally expect sales to stay flat the rest
of the year. Selling prices have changed little in the last month
and are expected to remain flat. Most retailers are satisfied with
their current inventory levels.
Auto sales have picked up recently in district states. Potential buyers are able to get loans in most instances. As the new model year begins, dealers are trying to trim inventories of 1991 cars. Dealers in all district states anticipate stronger sales of 1992 models.
Manufacturing
Purchasing agents report steady to slightly higher input prices over
the past month. Respondents expect prices to stabilize over the
coming months. Materials are readily available, with no problems
expected for the rest of the year. Most firms expect to maintain or
trim inventories in the months ahead. While some plants are working
close to capacity, none are facing bottlenecks or skilled labor
shortages.
Energy
Weak natural gas prices and only slightly stronger crude oil prices
have dampened energy activity in the district. The average number of
operating drilling rigs in district states dipped from 244 in July
to 237 in the first three weeks in August. The August rig count fell
to 16 percent below its year-ago level.
Housing Activity and Finance
Housing starts across the district are up from a year ago and mixed
compared with a month ago. Builders report mixed expectations for
starts the rest of the year. New home sales are up, helping to
reduce inventories of unsold homes. Prices for new homes are up in
some parts of the district and down in others. While construction
materials are readily available, builders continue to report
increases in lumber prices.
Most savings and loan respondents report net deposit outflows greater than both last month and a year ago. Most respondents expect outflows to continue in the coming months. Demand for mortgage funds has increased slightly in most areas of the district, but further increases in demand are not expected by most respondents. Mortgage rates are down slightly, and most respondents expect slight downward pressure on rates through the end of the year.
Banking
Changes in loan demand were mixed at district commercial banks last
month. Respondents reporting decreases, increases, and no change in
overall loan demand were about equal in number. Demand for
commercial real estate loans was generally lower, while demand for
agricultural loans was slightly higher. Other loan categories showed
no definite trend. Most banks report either steady or declining
loan-deposit ratios. Total deposits were generally unchanged or
somewhat higher at responding banks last month, but large CDs and
small time and savings deposits declined at some banks.
Most banks report no change in either their prime rate or their consumer lending rates. One or two banks report decreases in these rates, and a few respondents expect to lower these rates in the near term. No banks report changes in other lending terms.
Agriculture
Dry weather has reduced expected yields from the district's row
crops. Dryland crop yields in much of the district may fall to as
much as 50 percent below average. Irrigated crop yields are expected
to drop slightly below normal. Due to the reduced yields, some
district corn fields will be cut for silage instead of being
harvested for grain. While more rain will be of little help to this
year's row crops, additional moisture would improve growing
conditions for the district's winter wheat crop.
Pasture conditions have also suffered from the hot, dry weather. Many ranchers are providing supplemental feed for cattle grazing dry pastures, and a few have reduced cattle herd sizes due to the shortage of adequate pasture.
Falling fat cattle prices drastically reduced revenues of district feedlot operators in August. Operators who paid high prices for animals placed in feedlots saw narrow profit margins turn into substantial losses as finished cattle prices fell. Despite the losses, most operators have continued to feed a normal number of cattle, expecting an upturn in fat cattle prices.