Beige Book Report: Kansas City
August 3, 1994
Overview
The Tenth District economy continues to grow at a healthy pace. A
few signs of slowing, though, are emerging in some sectors. Retail
sales have leveled off in the past month, and residential
construction and sales of new homes are slowing. However,
manufacturers continue to operate at high levels of capacity use.
And, in the farm sector, an uptick in cattle prices has helped stem
losses in the cattle industry, while conditions are favorable for
crop producers. Moreover, district energy activity is benefiting
from firmer oil prices. Retail prices are reported to be stable,
while prices of manufacturers' inputs are up from a year ago.
Retail Sales
Most retailers report sales higher than a year ago, but flat over
the past month. Several retailers report their strongest sales in
apparel and home furnishings. Prices have changed little since last
year and are expected to remain stable for the rest of this year due
to competition at both the wholesale and retail levels. Most
respondents expect sales to rise in coming months but are
maintaining inventories at present levels.
Most auto dealers report increases in sales from last month and expect further increases throughout the next few months. Financing is available for both dealers and potential buyers. Inventories are low, and dealers are having difficulty building inventories so close to the change in model year.
Manufacturing
Most purchasing agents report input prices are slightly higher than
a year ago, but few expect prices to increase further in the near
term. Several agents report longer lead tines and some difficulties
in getting materials, but they expect no major bottlenecks during
the next few months. Most respondents are reducing their inventories
and plan to continue reducing them in the months ahead. Most firms
are operating at high levels of capacity, but few report shortages
of skilled labor. Export sales have increased and are expected to
grow throughout the remainder of the year.
Energy
Energy activity has picked up in the district, responding to the
continued strength of crude oil prices. The average number of
drilling rigs operating in the district climbed from 207 in May to
232 in June and climbed further to 240 in the first three weeks of
July. Still, the district's rig count remains below its year-ago
level.
Housing
Builders report that housing starts fell last month and expect them
to decline slightly over the remainder of the year. Despite the
decline, housing starts remain higher than a year ago. Sales of new
homes also moderated due to very low inventories of unsold homes.
Demand has been strong enough, however, to keep prices of homes
higher than a year ago. Mortgage demand has declined considerably
with increasing mortgage rates. Most respondents expect demand to
remain sluggish as rates continue to gradually climb. Although
building materials are generally available, builders expect the
price of materials to rise slightly in the near future.
Banking
Loan demand rose last month at almost all reporting banks. Most
banks reported higher demand for commercial and industrial loans,
consumer loans, and commercial real estate loans. Demand was flat to
up for home equity loans, residential construction loans, and
agricultural loans. Loan-deposit ratios were up from the previous
month, and security investments were flat to down at most banks.
Almost all respondents left their prime rate unchanged last month, and almost all expect to leave the rate unchanged in the near term. A few banks raised their consumer lending rates last month. However, most banks left these rates unchanged and expect no change in the near future. Lending standards were unchanged.
About half of the banks reported increases in deposits last month and the other half decreases. Demand deposits were flat at most banks, while changes in other deposit categories were mixed.
Agriculture
The district's winter wheat harvest is nearing completion. Most
parts of the district report normal or above normal yields. The
district's corn and soybean crops are generally in good condition,
and most farmers expect above normal yields.
A modest rebound in cattle prices has reduced losses in the district cattle industry. The recent losses in district feedlots, however, have had relatively little impact on district ranchers. Most ranchers plan to sell their cattle in the autumn, when prices are expected to be higher.
District lenders report that most cattle feeders have been able to absorb their recent losses. Some small, under-capitalized feeders have been forced out of business. But most larger feedlots are well capitalized after several recent years of healthy profits. Thus, most lenders have experienced only a slight deterioration in cattle loan portfolios.