Beige Book Report: Kansas City
March 10, 1993
Overview
The Tenth District economy continues to strengthen slowly. Retail
sales are still rising, housing sector activity is increasing, and
farm income continues to improve. However, activity in the energy
sector has slipped and district manufacturers continue to operate
below capacity. Prices remain generally stable for both retail goods
and manufacturers' inputs.
Retail Sales
Retailers report further sales increases last month, following the
Christmas season surge. Several retailers noted marked strength in
apparel sales. Prices are unchanged or slightly lower compared with
a month ago and are expected to remain stable. Sales are expected to
continue increasing over the next few months. Most respondents are
satisfied with inventory levels, but a significant minority of
respondents report higher-than-desired inventories.
Auto sales in the district were mixed last month, with some dealers reporting slower sales due to adverse weather. Dealers are optimistic that car sales will increase over the next few months and are padding inventories. Financing is readily available in most parts of the district.
Manufacturing
Purchasing agents report input prices were steady to slightly higher
last month, with little change expected in coming months. Materials
are readily available, although some respondents report increasing
lead times for aluminum and steel. Most respondents are trimming
inventory levels as part of their long-run efforts to improve
financial performance. Firms generally continue to operate below
capacity. Firms report mixed expectations for exports as a
consequence of German reunification, problems with the transition to
a market system in the former Communist countries, and other unrest
in Europe.
Energy
Drilling activity in the district is trending downward following the
yearend expiration of tax credits for some types of natural gas
drilling. The average number of operating drilling rigs in district
states fell from 327 in December to 287 in January. The rig count
continued to fall in the first three weeks of February to an average
of 228. Despite the recent declines in drilling activity, the
region's rig count remains about 15 percent higher than one year
ago.
Housing
Housing starts in the district were up last month, except where
hampered by bad weather. Sales of new homes were also up. And
inventories dropped to very low levels. Home prices increased and
are expected to continue rising in coming months, reflecting both
strong demand and sharply higher lumber prices. Demand for mortgages
has been strong and is expected to remain strong. Mortgage rates are
low, with little change expected in the near term.
Banking
Loan demand at district banks was constant to up somewhat last
month. Demand was generally stronger for consumer loans and home
mortgages. Demand was mostly unchanged for commercial real estate
loans, construction loans, and commercial and industrial loans.
Loan-deposit ratios were mixed compared with the previous month but
mostly higher compared with year-ago levels. Investments were
unchanged to lower at most banks.
No reporting banks changed their prime rates last month, and none expect change in the near future. Consumer lending rates at about half of the banks were lower than a month ago and unchanged at the rest. Most banks expect no changes in their consumer lending rates over the near term. Lending standards were unchanged.
Total deposits were flat or down at most banks compared with the month before. Demand deposit changes were mixed. NOW accounts, MMDAs, and IRA and Keogh accounts were up at most banks, while large ODs and small time and savings deposits were generally down.
Agriculture
The district's winter wheat crop remains in excellent condition, due
to almost ideal growing conditions. A series of winter storms has
provided a protective blanket of snow and boosted soil moisture,
which is usually in short supply. In some parts of the district,
however, the crop has received too much moisture, which could
trigger disease problems and reduce crop yields. But overall, at
least normal yields are expected.
The harsh winter weather has slowed weight gains and swelled death losses in district feedlots. As a result, production costs have surged, and the supply of fed cattle available for sale is smaller than normal. The smaller supply of fed cattle has pushed up cattle prices to near record levels. But despite the higher prices, the surge in production costs has trimmed profits for district cattle feeders.
Year end credit reviews by agricultural lenders indicate that most farm borrowers entered 1993 in strong financial condition. Livestock producers last year recorded larger financial gains than crop producers. Lest year's record grain harvest pushed down grain prices and squeezed profit margins for district crop producers. But the lower grain prices reduced feed costs and bolstered profit margins for livestock producers. Overall, most borrowers made timely payments on their farm loans.