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Beige Book Report: Kansas City

June 23, 1993

Overview
The Tenth District economy continues to grow moderately. Retail sales are increasing, housing activity remains strong, and bank loan demand is generally strengthening. Moreover, farm income remains healthy and the energy sector is improving slightly. On the price front, retail prices are reported to be mostly stable, while prices of manufacturers' inputs are stable to slightly higher.

Retail Sales
Nearly all retailers contacted report higher sales than a year ago, although some note less improvement in sales over the last month. Several retailers report strong sales of home goods, such as furniture, appliances, and other home furnishings. Prices are mostly stable compared with a year ago and are expected to change little during the rest of this year. Respondents are generally satisfied with inventory levels, despite expected sales gains over the next several months.

Auto dealers report sales increased last month. Most buyers can obtain loans, but they are more readily available from captive financial institutions than from banks. Most dealers expect sales to rise during the next few months and are maintaining or increasing inventories.

Manufacturing
Purchasing agents report stable to slightly higher input prices compared with a year ago. Prices are expected to remain unchanged or rise slightly in the near term. Materials are readily available. Respondents are trimming inventories in response to sluggish sales or in an effort to increase efficiency. While some respondents are operating near capacity, few bottlenecks are reported. Most exporting firms report that sales abroad are flat or down.

Energy
Drilling activity in the district is improving somewhat following steep declines earlier in the year. The average number of operating drilling rigs in district states rose slightly from 197 in April to 203 in May, following a similar rise the month before. During April and May, the average rig count in the district was about 5 percent higher than during the same period a year ago.

Housing
Housing starts are generally steady relative to last month. Although demand is strong, starts have been delayed in some areas due to poor weather. Most builders expect starts to increase as the weather improves. Sales of new homes are unchanged from last month, and inventories remain low. Building materials are readily available. Prices of some materials have softened a bit, but builders expect prices to strengthen in the near future.

Mortgage demand is down slightly due to fewer refinancings, nonetheless, most respondents expect demand to stay high in the near term. While mortgage rates have been flat, most respondents expect rates to increase somewhat over the rest of the year.

Banking
District bankers report constant to stronger loan demand last month. Demand for commercial and industrial loans, consumer loans, and hone mortgages was up at most banks, while demand for commercial real estate loans and agricultural loans was constant to up. Loan-deposit ratios were mostly higher compared with both last month and last year.

District banks did not change their prime rate last month, and no bankers expect to change that rate in the near term. But consumer lending rates were down at about half of the responding banks and unchanged at the other half. Most bankers expect no further change in their consumer lending rates in the near term. Lending standards remained unchanged at all responding banks.

Deposits were constant or increased at most responding banks during the last month. Demand deposits, MMDAs, and IRA and Keogh accounts were up at most banks; NOW accounts were mixed. Both large CDs and small time and savings deposits were down at most banks.

Agriculture
District farmers are finishing the planting of spring crops after long delays caused by wet weather. Wet weather also delayed the start of the district's winter wheat harvest. The wheat harvest should be in full swing by late June, however, and most district bankers expect normal wheat yields.

Most cattle feedlots in the district are operating at capacity, but producers are avoiding a buildup of cattle inventories. After rising to record levels early last spring, fed cattle prices have edged down, and further declines are expected.

District bankers have completed their spring credit reviews and report the credit quality of farm borrowers improved during the past year. Diversified crop and livestock farms were generally more profitable than crop-only farms, due to strong livestock prices and weak crop prices. This year bankers expect farm income to remain healthy, about the same as last year.

Lenders report an uptick in business activity in rural communities during the past year. While retail activity was generally stronger, Main Street businesses continue to struggle against increased competition from national retail chains.