Beige Book Report: Kansas City
September 14, 1994
Overview
The Tenth District economy is growing at a healthy pace. Retail
sales increased over the past month and manufacturers continue to
operate at high levels of capacity. In the farm sector, rebounding
cattle prices have helped trim losses in the cattle industry and
conditions remain generally good for crop producers. In other areas,
residential construction and sales of new homes continue to slow and
retreating oil and natural gas prices have restrained district
energy activity. Retail prices are reported to be stable while
prices of manufacturers' inputs are up from a year ago.
Retail Sales
Retailers report sales increases over both the past year and the
past month. Several retailers report their strongest sales in
apparel and furniture. Prices have changed very little since last
year and are expected to remain steady for the rest of this year.
Most respondents expect sales to grow moderately over the next few
months. While most retailers are either satisfied with current
inventory levels or are trimming slightly, some are planning to
increase inventories for the upcoming holiday season.
Auto dealers report sales have been flat over the past month due to a lack of supply. Dealers are optimistic that sales will increase over the next few months. Financing is available for both dealers and potential buyers. Dealers are having difficulty building up their low inventories because new models are not yet widely available.
Manufacturing
Purchasing agents report their input prices are up from a year ago,
although fewer agents report input price increases during the past
month. Several agents report difficulties in getting materials.
Manufacturers using construction materials such as lumber and cement
report significantly longer lead times. Firms are generally
satisfied, however, with their current inventory levels. Most firms
are operating at high levels of capacity, with a few agents
reporting difficulty in obtaining skilled labor. Exporting firms
expect foreign sales to remain stable through the end of the year.
Energy
Retreating crude oil and natural gas prices have recently slowed
district energy activity. After a two-month rebound, the average
number of drilling rigs in the district slipped from 235 in July to
226 in August, well below the average from a year earlier.
Housing
Most builders report housing starts declined last month and that
some additional decline is expected over the rest of the year.
Respondents also report slower sales of new homes. Despite these
declines, prices of new homes remain higher than a year ago. Some
builders report shortages of building materials but expect prices of
materials to remain stable. Mortgage demand continues to decline
with higher mortgage interest rates. Most respondents expect
mortgage demand to remain sluggish as rates level off.
Agriculture
The district's winter wheat harvest is complete. Wheat yields were
slightly below normal in much of the district due to dry weather
during the growing season. In contrast, corn and soybean yields are
expected to approach record levels when harvest begins in a few
weeks.
Cattle prices have rebounded somewhat in recent weeks, trimming losses in district feedlots. Large cattle-feeding losses during the summer pushed many speculative investors out of the industry. But most established cattle feeders were able to cut their losses and stay in business by reducing their cattle inventories. As a result, district feedlots are operating below capacity.
Bankers in most rural communities report modest improvement in overall business conditions since last year. Contributing to their upbeat assessment are a rebound in crop earnings after last year's floods, healthy retail sales, and strong loan repayments by most non-farm businesses.
Banking
Loan demand rose last month at most reporting banks. Demand for
consumer loans rose and demand for home equity loans was flat to up.
Changes in demand were mixed for commercial and industrial loans,
construction loans, and commercial real estate loans. Demand for
mortgages and agricultural loans was down at most banks. Loan-
deposit ratios were flat to up from the previous month and security
investments were mostly down.
All respondents raised their prime rate 50 basis points last month and about half expect to raise it again in the near term. All reporting banks also raised their consumer lending rates, with half expecting further near-term increases. Lending standards were unchanged at all banks.
Deposits fell last month at most respondent banks, due mostly to declines in demand deposits and IRA and Keogh accounts. MMDAs were flat while changes in NOW accounts, large and small time deposits, and savings deposits were mixed.