Beige Book Report: Kansas City
June 22, 1994
Overview
The Tenth District economy continues to grow at a healthy pace.
Retail sales are increasing and manufacturers are operating at high
levels of capacity use. While sales of new homes are showing signs
of slowing, residential construction remains on the increase. In the
farm sector, weak cattle prices are bringing steep losses to the
cattle industry but conditions for crop producers are favorable.
District energy activity is generally sluggish although firmer oil
prices are beginning to spur drilling activity in some areas. Retail
prices remain stable, while manufacturers' input prices are
increasing modestly.
Retail Sales
Most district retailers report moderate sales increases led by
strong apparel sales relative to both a year ago and the past month.
Retail sales are expected to increase in the next few months.
Competition continues to keep 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.
Auto dealers generally report sales increases from last month. Dealers are optimistic that sales will continue to grow over the next few months and thus are expanding or maintaining inventories. A few respondents report difficulty in obtaining enough new cars from manufacturers to meet their demand. Financing is available for both dealers and potential buyers.
Manufacturing
Most purchasing agents report input prices are modestly higher than
a year ago, but few expect further price increases in the near term.
Some agents report longer lead times and difficulties in getting
materials. Most respondents are boosting inventory levels but expect
a reduction in the coming months due to increased sales. Firms are
generally operating at high levels of capacity use. Some firms are
experiencing bottlenecks due to shortages of skilled labor. Export
sales have been stable and are expected to remain so in the next few
months.
Energy
District energy activity remained sluggish in May restrained by a
further dip in natural gas prices. The average number of drilling
rigs in the district fell to 207 in May from 213 in April. However,
steady increases in crude oil prices are beginning to boost district
drilling activity. For the first week of June. the district's rig
count stood at 225.
Housing
Housing starts increased over the past month and remain higher than
a year ago. Single-family homes accounted for most of this increase.
For the remainder of the year, builders generally expect starts to
level off. Sales of new homes are slowing, but builders continue to
report tight inventories. Prices of building materials remain high.
All respondents report problems with cement availability.
The demand for mortgage funds continues to subside with increasing mortgage rates. However, most respondents expect rates to level off and the demand for mortgage funds to remain stable or increase slightly.
Banking
Loan demand rose last month at almost all reporting banks. Most
banks reported higher demand for commercial and industrial loans,
consumer loans, home mortgages, and residential construction loans.
Demand was flat to up for commercial real estate loans and mixed for
home equity and agricultural loans. Loan-deposit ratios were up from
the previous month. About equal numbers of banks reported that
security investments were up, down, and unchanged.
All respondents raised their prime rate last month and almost all expect to leave the rate unchanged in the near term. Banks also raised their consumer lending rates last month, although most banks anticipate no further change in the near future. Lending standards were unchanged.
About half of the banks reported no change in deposit levels last month, while the other half were divided between increases and decreases. Changes in deposits were mixed in all deposit categories.
Agriculture
Recent rainfall has improved prospects for district crops. The
winter wheat crop is generally in fair condition and normal yields
are expected throughout most of the district. The wheat harvest
should be in full swing by late June. The corn and soybean crops are
in excellent condition due to favorable weather and adequate soil
moisture. With crop inventories unusually lean, prices are likely to
remain volatile as crop prospects shift during the growing season.
An abundance of market-ready cattle and large supplies of competing meats have pushed fed-cattle prices to the lowest level in nearly three years. As a result, losses in many district feedlots exceed $100 per head. Little recovery in cattle prices is expected until autumn, pointing to further losses for the district's most important agricultural enterprise.
Farm income prospects for 1994 diverge widely by type of farming due to the bleak outlook for the district cattle industry and a more favorable crop outlook. Most district bankers expect a sharp downturn in incomes among district cattle producers. But higher crop prices and a rebound in crop production after last year's weather- induced losses are expected to boost incomes for district crop producers.