Beige Book Report: Kansas City
September 13, 1995
Overview
The Tenth District economy continued to grow at a moderately strong
pace over the past month. Retail sales were mixed during the month,
but remained healthy compared with last year's sales. Manufacturing
remained generally strong, but showed signs of slowing. Homebuilding
activity was steady. Activity in the district's energy industry
slowed, and agriculture was hindered by low cattle prices.
Manufacturers continued to report increases in some materials
prices, but wages and retail prices were steady.
Retail Sales
Most retailers report sales were unchanged last month from the month
before, but sales remained above year-ago levels. Over the past
month, sales of household goods were strong, while sales of apparel,
especially children's back-to-school clothing, were surprisingly
weak. Retailers generally expect modest growth in sales over the
rest of the year. While most retailers are satisfied with current
inventory levels, some are trimming inventories slightly. Auto
dealers report flat or increasing sales over the past month and are
optimistic about the sales outlook for the rest of 1995.
Manufacturing
Most manufacturers continued to operate at high levels of capacity
last month, although some signs of slowing were evident. None of the
respondents report production bottlenecks due to capacity
constraints, but some report slight labor shortages. While most
manufacturers are satisfied with current inventory levels, several
are trimming stocks. A late July survey of district manufacturers
found declining product orders and shipments at plants across the
region.
Energy
Low prices for crude oil and natural gas continued to hold down
activity in the district's energy industry. The average number of
drilling rigs operating in the district fell slightly during the
first three weeks of August. Moreover, district drilling activity
remained well below the year-ago level.
Housing
Most builders report housing starts and sales were unchanged last
month from the month before and remained well below year-ago levels.
Construction of single-family homes remained sluggish, but
multifamily construction picked up slightly. Building materials are
readily available with no delays, and little change in materials
prices or availability is expected in coming months. Lenders expect
mortgage demand to remain brisk.
Banking
Loans increased at district banks last month, pushing up loan-
deposit ratios. Most lenders report gains in commercial and
industrial loans, consumer loans, and home mortgage loans. Demand
for home equity loans, construction loans, commercial real estate
loans, and agricultural loans was steady. Security investments
generally declined.
None of the respondents changed their prime rate last month, but half expect to lower it slightly in the near future. Some respondents lowered their consumer lending rates, but few expect further change in the near term. Lending standards generally remained unchanged.
Half of the respondents report an overall decrease in deposits, but changes were mixed among different types of deposits. Demand deposits and NOW accounts slipped, while MMDAs, large CDs, IRAs, and Keogh accounts rose. Small time and savings deposits were steady.
Agriculture
The district's corn and soybean crops are in fair condition, but
crop development is two to four weeks behind schedule due to last
spring's rain delays. Normal yields may still be possible if the
growing season is not shortened by an early frost, but production is
expected to be much smaller than last year's bumper harvest. Crop
prices remain well above last year's level, lessening the impact of
large crop losses for many producers while boosting incomes for
those who will harvest normal crops.
Higher crop prices, however, are trapping district cattle feeders between higher feed costs and low cattle prices. With cattle prices held in check by record production of beef and competing meats, further losses appear in store for district cattle producers. The size of district cattle herds remains fairly steady, but continued losses may force some producers out of business later this year.
With farm incomes down, district bankers report some erosion in the quality of farm loan portfolios. The erosion is greater among livestock loans than crop loans, due to two years of losses in the district cattle industry.
Prices and wages
Manufacturers continue to report widespread increases for materials
prices, especially for aluminum and paper. While some manufacturers
report occasional shortages of temporary or skilled labor, none
report upward pressure on wages. Retailers report stable prices with
no significant price increases anticipated in the next few months.