Beige Book Report: Kansas City
November 1, 1995
Overview
The Tenth District economy continued to grow at a moderately strong
pace during the past month. Retail sales and manufacturing activity
remained strong, while energy and homebuilding activity stayed
sluggish. Agriculture's income prospects remained weak due to
disappointing crops and low cattle prices. Manufacturers continued
to report shortages and rising prices for some materials, although
wages and retail prices held steady.
Retail Sales
Most retailers report sales were unchanged from the month before but
remained above year-ago levels. Unseasonably warm weather slowed
sales of outerwear and seasonal apparel last month, but sales of
most other products were steady. Retailers generally expect strong
sales during the coming holiday season and have begun their normal
seasonal buildup in inventories. Automobile dealers report last
month's sales were down slightly from the month before. Most dealers
are generally optimistic about sales prospects for the rest of the
year, however, as new car models become more widely available.
Manufacturing
Most manufacturers continued to operate at high levels of capacity
during the past month. None of the respondents report production
bottlenecks due to capacity constraints, although a few report
shortages of skilled labor and some materials. While most
manufacturers are satisfied with inventory levels, some are trimming
stocks.
Energy
Activity in the district's energy industry remained sluggish over
the past month due to continued low prices for crude oil and natural
gas. The average number of drilling rigs operating in the district
during the first half of October was about even with the average for
the previous two months. Drilling activity in the district remained
well below the year-ago level.
Housing
Most builders report housing starts last month were unchanged from
the month before and remained well below year-ago levels.
Construction of multifamily homes strengthened somewhat, but single-
family construction remained sluggish. Sales of existing homes were
also flat and continued to trail the pace of a year ago. Building
materials are readily available with no delays, and most builders
expect little change in material availability or prices during the
remainder of the year. Lenders report strong mortgage demand, which
they expect will continue in the months ahead.
Banking
Loans increased slightly at district banks last month, pushing up
loan-deposit ratios. Most bankers report slight gains in commercial
and industrial loans, consumer loans, home improvement and home
equity loans, and residential and commercial construction loans.
Demand for agricultural loans was steady. Security investments
generally declined.
Most of the respondents report-total deposits were unchanged last month, but changes varied among different types of deposits. Demand deposits declined slightly while MMDAs increased. Large CDs, small time and savings deposits, NOW accounts, IRAs, and Keough accounts held steady.
None of the respondent banks changed their prime rate last month, and only one bank expects to lower its prime rate in the near future. A few respondents increased their consumer lending rates slightly, but most respondents expect no further change in the near term. None of the banks report a change in lending standards.
Agriculture
Dry weather has speeded harvest of the district's corn and soybean
crops. Yields are well below normal, though, due to a growing season
shortened by late planting and early frost. The recent dry weather
has also delayed planting of the winter wheat crop, dampening
prospects for next year's harvest. The overall drop in crop
production has pushed up prices in recent weeks. The higher prices
will boost farm incomes in parts of the district that harvest normal
crops but will not fully offset crop losses elsewhere.
The rise in crop prices has also pushed up feed costs, worsening the profit outlook for the district cattle industry. With continued large supplies of beef and other meats in prospect, fed-cattle prices are not expected to rise much above break-even levels in the months ahead. As a result, cattle feeders are paying less for young cattle entering their feedlots, pushing down incomes for district cattle ranchers. Despite the recent surge in crop prices, disappointing crops and weak profits in the cattle industry point to little, if any, improvement in district farm incomes in 1995 following last year's sharp decline.
Prices and wages
Manufacturers continue to report price increases for some raw
materials, especially paper, packaging materials, and some kinds of
steel. While some manufacturers report shortages of skilled labor,
few report upward pressure on wages. Retailers report steady prices
with no significant price increases expected in the next few months.