Beige Book Report: Kansas City
May 4, 1994
Overview
The Tenth District economy appears to be growing at a healthy pace.
Residential construction and retail sales are increasing and the
demand for bank loans is strengthening. In the farm sector, profit
margins on cattle are higher. District energy activity, however, has
slowed further. Retail prices remain generally stable, while
manufacturers' input prices are increasing slightly.
Retail Sales
Most district retailers report moderate sales increases over both
the past year and the past month. Led by strong sales of spring and
summer apparel, total sales are expected to increase steadily in the
next few months. Keen competition has kept retail prices stable and
is expected to preclude any significant price increases in the near
term. Most retailers are satisfied with current inventory levels,
although some respondents expect to increase inventory purchases in
response to rising demand.
Most auto dealers report sales increases from last month and anticipate further increases in the next few months. Financing is available for inventories, and potential buyers are generally able to obtain loans. Dealers are generally maintaining current inventory levels.
Manufacturing
Purchasing agents report slightly higher input prices compared with
a year ago. Few expect further price increases in the near term.
Most agents report no problems with input availability nor with
changes in lead times, and they generally predict no major
difficulties in acquiring inputs for the remainder of the year.
Several respondents are reducing current inventory levels and intend
to continue doing so in the near term. A number of respondents also
report their firms are operating closer to capacity, but most report
no bottlenecks. Few purchasing agents report they have yet been
seriously affected by the Teamsters strike.
Energy
District energy activity has slowed further as natural gas prices
have softened and crude oil prices have remained low. Sources in
Kansas report declines in oil production, with continued closings of
high-cost stripper wells. Overall, the number of drilling rigs
operating in district states fell from 237 in February to 218 in
March. The rig count continued to fall in the first half of April to
212.
Housing
Housing starts remain significantly higher than a year ago and have
generally increased over the past month. Builders expect starts to
remain strong for the rest of the year. Sales of new homes are also
strong, causing a very low inventory of unsold homes despite the
increases in starts. Prices of building materials remain high.
Slight increases in delivery times have been reported.
Mortgage demand has declined as refinancing has lessened, mainly due to increasing mortgage rates. But most respondents expect demand to remain about constant for the rest of the year, due to the expectation that rates will soon level off.
Banking
Loan demand at most reporting banks strengthened last month. Most
banks report higher demand for consumer loans, residential
construction loans, and commercial and industrial loans. Demand was
generally unchanged for commercial real estate loans and
agricultural loans, and mixed for home equity loans. Loan-deposit
ratios were mostly unchanged from the previous month, and
investments were flat.
Almost all respondents raised their prime rate last month and expect further increases in the near term. However, most banks left their consumer lending rates unchanged and anticipate no change in those rates in the near future. Lending standards were unchanged.
Deposits at most banks were up. Demand deposits and money market deposit accounts were generally higher. NOW accounts and small time deposits were constant to higher, while large CDs were mixed.
Agriculture
The district's winter wheat crop remains in good condition, having
escaped with only minor frost damage in early April. Spring rainfall
has improved crop prospects in wheat-growing regions that had been
unusually dry, but additional rainfall is needed to ensure normal
wheat yields. While preparing fields for spring plantings, most
district farmers are waiting to plant corn and soybeans until warmer
and drier weather arrives.
Cattle feedlots in the district are operating near capacity. Producers are avoiding a buildup of cattle inventories, however, even though higher cattle prices and lower feed costs in recent weeks have boosted profit margins. Producers remain cautious because larger supplies of beef, and competing meats are expected to push cattle prices down later this year.
District bankers report generally steady retail sales activity and no adverse effects of the recent trucking strike activity in their rural lending areas. Spending was somewhat restrained, however, by lower incomes in some farm-dependent communities, which suffered large crop losses in last summer's heavy rains and flooding.