Beige Book Report: Kansas City
January 21, 1993
Overview
The Tenth District economy is still growing moderately. Retail sales
are continuing to improve, bank loan demand is strengthening
further, and farm income is rising slightly. However, while activity
in the energy sector improved through yearend, some slowing is
expected in the near term.
Retail Sales
Most retailers report increased sales last month, with Christmas
sales strong in most merchandise categories. District retailers
anticipate further improvement in sales in 1993. Overall prices
increased only slightly from a month earlier and are expected to
remain nearly stable. Most respondents are satisfied with inventory
levels and expect no change for the next few months.
Auto sales increased slightly in the district last month, and most dealers expect this growth to continue in 1993. Some dealers report difficulty in financing inventories due to the new GMAC policy of no longer financing floor planning for autos which are not produced by General Motors. Dealers are generally satisfied with current inventory levels and expect to hold them steady.
Manufacturing
Most purchasing agents report input prices were steady to slightly
higher through 1992. Prices are expected to increase only modestly
in 1993. Materials are readily available although lead times are
shortening in a few instances. Most firms are trimming inventories
due to seasonal factors and a move to just-in-time inventory
management. Firms are generally still operating below capacity.
Exporting firms expect foreign sales to increase in 1993.
Energy
Drilling activity in the district continued to improve through the
end of the year. The average number of active drilling rigs climbed
from 307 in November to 327 in December. The rise brought the
region's rig count to a level 43 percent higher than a year earlier.
Drilling activity is expected to drop sharply in coming weeks due to
the yearend expiration of tax incentives for coal-seam methane gas
drilling.
Housing
Housing starts slowed last month, due mainly to seasonal factors but
remain significantly higher than last year. Sales of new homes also
slowed and the demand for mortgage funds declined as mortgage rates
edged upward. Despite these developments, inventories of new homes
declined last month and house prices rose. The price of labor
remains high, but prices of other building materials are about
normal. Builders apparently are accepting the price increases for
lumber as a permanent reality rather than an aberration to be waited
out. Despite the recent rise in mortgage rates, most respondents
expect rates over the next three months to stay within a narrow
range.
Banking
Loan demand at district banks continued to strengthen somewhat last
month. Demand for commercial and industrial loans was stronger at
almost all banks. Demand for consumer loans and home mortgages was
flat to stronger, while demand for commercial real estate loans was
generally unchanged. Loan-deposit ratios were unchanged or higher
compared with the previous month, but about half of the respondents
reported that loan-deposit ratios were still below year-ago levels.
Investments were unchanged to higher at most banks.
No banks changed their prime rates last month, and none expect to change them in the near future. While consumer lending rates were unchanged at most banks, a few respondents reported they had reduced rates. Most banks expect their consumer lending rates to remain constant over the near term. Lending standards were unchanged.
Total deposits were flat at half of the responding banks and higher at the other half. Demand deposits increased at almost all banks. NOW accounts, MMDAs, and small time and savings deposits were generally constant to up, while large CDs were generally constant to down.
Agriculture
Most farm operators entered 1993 in solid financial condition, and
the outlook for farm income in the year ahead is relatively bright.
Large supplies of corn and soybeans have pushed down crop prices,
limiting prospective income gains for crop producers. But low crop
prices will hold down feed costs and boost incomes for livestock
producers. Overall, the outlook points to a slight gain in farm
income in 1993.
District bankers expect the uptick in farm income to increase economic activity in rural communities, bolstering demand for both farm and commercial loans. While business conditions continue to improve in rural areas, many Main Street businesses are struggling to maintain sales against growing competition from national retail chains.