Beige Book Report: Kansas City
March 9, 1994
Overview
The Tenth District economy continues to grow moderately. Retail
sales and residential construction are increasing, and the demand
for bank loans is strengthening. Farm income prospects remain weak,
however, and activity in the energy sector is sluggish. Retail
prices are generally stable, while prices of manufacturers' inputs
show some slight increases.
Retail Sales
Retailers report moderate increases in January's sales, despite bad
weather in parts of the district. Most retailers attribute much of
the strength to clearance sales on several categories of
merchandise. Sales are expected to climb steadily in the next few
months. Retailers expect pressure from competition to keep prices
stable over the near term. While most retailers are satisfied with
current inventory levels, a few respondents report higher-than-
desired levels.
Automobile sales were mixed last month, but dealers are optimistic about sales in 1994. Dealers are generally expanding inventories to meet the expected demand. Financing is readily available.
Manufacturing
Purchasing agents report stable to slightly increasing input prices
compared with a year ago. Few expect price increases in the near
term. Some agents report slight problems with input availability and
scattered increases in lead times, but they generally expect few
problems for the remainder of the year. Most respondents are
satisfied with their current inventory levels after actively moving
to reduce them. Most respondents who sell abroad report flat to
slightly decreasing export sales. Firms report a few incidental
problems due to bad weather in the eastern United States, but no
serious impact on production.
Energy
Energy activity in the district remains sluggish despite higher
natural gas prices. While cold weather helped boost the price of
natural gas, glutted oil markets held down the price of crude oil
and drilling activity in the district slipped. Overall, the average
number of operating rigs in district states slipped from 278 in
December to 259 in January. The rig count continued to fall in the
first two weeks of February to 239.
Housing
Builders report that housing starts were steady to off a bit
compared with a month earlier, but up significantly from a year ago.
Sales of new homes are flat compared with both a month ago and a
year ago. Inventories of unsold homes remain low. Building materials
are readily available, but prices of materials, especially lumber,
have increased. Builders report that weather conditions have had
little impact on construction apart from the usual seasonal effects.
Mortgage refinancing activity has declined, but respondents generally expect the demand for mortgages to rise due to increased homebuying in the spring and summer. Respondents report that mortgage rates have risen and expect rates to increase further over the rest of the year.
Banking
Loan demand rose last month at most reporting banks. Most banks
report higher demand for commercial and industrial loans, consumer
loans, and commercial real estate loans. Demand was mixed for home
mortgages, home equity loans, residential construction loans, and
agricultural loans. Loan-deposit ratios were constant to up compared
with the previous month, while investments were mixed.
No respondents changed their prime rate last month or expect to in the near term. Most banks left their consumer lending rates unchanged and expect no change in the near future. Lending standards were also unchanged.
Deposits were flat to down at most banks. While money market deposit accounts were generally higher, demand deposits, NOW accounts, small time deposits, and large CDs were all mixed.
Agriculture
Dry weather has stunted the winter wheat crop in part of the
district's main wheat-producing area. Timely rainfall will be needed
through the rest of the growing season to ensure normal wheat yields
this summer. The dry weather has also trimmed the supply of winter
wheat pastures available for grazing by district cattle herds. An
ample supply of hay and other forages, however, is available to
offset the shortage of wheat pastures.
Most district feedlots are quickly selling off the large inventory of cattle that has built up in recent weeks. High feed prices and weak cattle prices have pushed feeding margins well below break- even. While some feeders continue to wait for higher cattle prices before selling their cattle, most feeders are selling now to limit their losses.
Early reports from year-end credit reviews at district agricultural banks indicate few problem loans and healthy equity levels among district farm borrowers. Federal disaster assistance and higher crop prices cushioned the financial impact of large crop losses caused by wet weather and flooding in the eastern part of the district. Overall, most farm borrowers in the district entered the new year in solid financial condition. But with further losses in the livestock sector, prospects for district farm income have weakened.