‹ Back to Archive Search

Beige Book Report: Kansas City

March 15, 1995

Overview
The Tenth District economy continued to grow at a strong pace over the past month. Retail sales improved and manufacturers continued to operate at high levels of capacity. While single-family homebuilding slowed further, multifamily construction picked up in some parts of the district The district's winter wheat crop was generally in good condition, and recent gains in crop and livestock prices have brightened the outlook for district farm incomes. While materials prices for manufacturers continued to rise throughout the region, upward pressure on wages was less prevalent. Retailers held prices steady despite increases in costs of goods and labor.

Retail Sales
Retailers report that sales improved over the past month and were ahead of year-ago sales. Much of the improvement, however, can be attributed to recent clearance promotions. Unseasonably warm weather continued to hamper sales of outerwear and other seasonal merchandise. Although retailers trimmed inventories, current inventory levels are generally considered satisfactory. Most auto dealers report slightly declining sales over the past month, due primarily to higher financing costs for consumers. Nevertheless, auto dealers expect sales to pick up in the spring.

Manufacturing
Most firms continued to operate at high levels of capacity last month. Manufacturing lead times increased but are expected to shorten in the months ahead. Firms are generally satisfied with current inventory levels, although a few may boost inventories slightly to meet demand or to circumvent increases in input prices. For manufacturers with significant export sales, growing sales to Europe last month appeared to offset declining sales to Mexico.

Energy
Although crude oil prices firmed somewhat in recent weeks, low natural gas prices continued to curb activity in the district's energy industry. The average number of drilling rigs operating in district states fell in January and early February. As a result, the region's drilling activity remained below its year-ago level for the ninth consecutive month.

Housing
Builders report a downturn in housing starts from both last month and a year ago. The downturn was concentrated in single-family starts, while multi-family starts rose slightly. Most respondents expect building activity to remain sluggish during the coming months. Some builders report sales of new homes slowed over the past month but remained slightly ahead of their year-ago pace. Builders report materials were available with few delays. While mortgage demand declined considerably due to higher interest rates, most lenders doubt that demand will continue to deteriorate.

Banking
Loan demand at reporting banks increased slightly last month. Banks report higher demand for commercial and industrial loans, consumer loans, and commercial real estate loans. Demand was largely unchanged for home equity loans, construction loans, and agricultural loans. Most banks, however, report a decline in home mortgages. Loan-deposit ratios were constant to up from the previous month, while changes in security investments were mixed.

Many respondents raised their prime rate last month but expect the rate to hold steady in the near future. While consumer lending rates increased, most banks do not expect additional changes in the near term. Lending standards remain unchanged.

Changes in total deposits among reporting banks were mixed. IRA/Keogh accounts rose, while demand deposits and NOW accounts fell. Changes in money market deposit accounts and small time and savings deposits were also mixed.

Agriculture
The district's rangeland and winter wheat fields were generally in good condition following a warm, dry winter. Forage supplies for grazing livestock were ample. Timely spring rains are needed, however, to replenish soil moisture supplies.

District bankers report brisk demand for farm loans, although it appears that many farmers used new loans to fund operating costs and past debts. Relatively little borrowing during the month was for expansion of farm businesses, especially among livestock producers.

Spring credit reviews at district agricultural banks reveal a sharp drop in profits for livestock producers in 1994 and a modest rebound for crop producers. Big crop yields bolstered incomes for crop producers, despite lower crop prices. Weak livestock prices triggered losses for livestock producers. Recent gains in crop and livestock prices have slightly improved the outlook for district farm incomes in 1995.

Prices and Wages
Several retailers report the costs of goods and labor increased last month, but the increases were not passed on to customers. Manufacturers report input prices increased and were up from a year ago. The steepest price increases were for chemicals, paper, and rubber. While manufacturers in some parts of the district report tighter labor markets, only a few report upward pressure on wages. A late-January survey of manufacturing plants across the district showed a somewhat larger proportion of respondents reporting increases in finished product prices than in October, when the last survey was taken. Builders in Kansas City and Denver continued to report increases in the prices of building materials, while materials prices in other parts of the district either leveled off or declined.