Beige Book Report: Kansas City
December 6, 1995
Overview
The district economy remained strong during the past month.
Manufacturing strengthened farther, and homebuilding activity edged
up. Retail sales held steady at a level slightly below last year's
sales. Agriculture's income prospects brightened modestly, and
energy activity stayed sluggish. Manufacturers continued to report
shortages of some kinds of skilled labor and rising prices for some
materials, but wages and retail prices held steady.
Retail Sales
Most retailers report retail sales were unchanged last month from
the month before but remained slightly below year-ago levels.
Apparel sales remained weak while sales of home furnishings
strengthened. Retailers generally expect modest gains in sales
during the holiday season, and most indicate their inventories are
in line with expected holiday sales. Automobile dealers report a
normal seasonal decline in sales from the month before, but a
shortage of 1996 models also contributed to the decline. Dealers
expect sales to increase in the months ahead as popular new car and
truck models become more readily available.
Manufacturing
Capacity use in district manufacturing remained high during the past
month. While some manufacturers report shortages of skilled labor,
none report production bottlenecks due to capacity constraints. A
recent survey of district manufacturers found that manufacturers
increased production last month, while continuing to work off
inventories of materials and finished products.
Housing
Most builders report housing starts picked up slightly last month
but generally remained below the year-ago level. While construction
of single-family homes remained sluggish in much of the district,
construction of multi-family buildings strengthened. Sales of
existing homes remained flat during the past month but were stronger
than last year's sales.
Builders describe the inventory of unsold homes as normal or slightly less than normal and report that home prices have climbed during the past year. Building materials are readily available, and most builders expect little change in prices or availability of material in the next few months, despite a recent decline in lumber prices. Mortgage lenders throughout the district expect mortgage demand to remain strong during the next few months.
Banking
Loans rose faster than deposits at district banks last month,
pushing up loan-deposit ratios. Most bankers report gains in
commercial and industrial loans, consumer loans, and home
improvement loans, while home equity loans, residential and
commercial construction loans, and agricultural loans held steady.
Security investments were also steady. Most bankers report gains in
total deposits, supported by increases in MMDAs and large CDs, while
demand deposits, NOW accounts, small time deposits, and IRA and
Keough accounts were steady.
None of the respondents banks changed their prime rate last month, and most banks anticipated no change in their prime rate in the near future. A few of the respondents lowered their consumer lending rates slightly, but most expect no change in the near term. Most of the banks report no change in lending standards.
Energy
Low prices for crude oil and natural gas continued to hold down
activity in the district's energy industry. Slight increases in
energy prices in recent weeks were not enough to encourage much
exploration and drilling activity. The number of drilling rigs
operating in the district rose slightly during the first three weeks
of November but remained well below the year-ago level.
Agriculture
This year's corn, milo, and soybean crops were much smaller than
normal in much of the district, due to late planting and early
frost. Dry weather this fall also delayed planting and early
development of the district's winter wheat crop, diminishing
somewhat the prospects for wheat yields at harvest next summer. The
problems in crop production, combined with strong export demand,
have pushed up crop prices, offsetting much of the financial impact
from this year's crop losses while at the same time brightening
prospects for next year's income.
The higher crop prices have also pushed up feed costs, however, worsening the profit outlook for the district cattle industry. Fed cattle prices recently rose to profitable levels for the first time in six months. But large supplies of beef and competing meats may limit further gains in cattle prices, while higher feed costs squeeze profit margins. With feedlot profits weak, cattle feeders are paying less for young cattle entering feedlots, triggering losses for district cattle ranchers. As a result, many ranchers are expected to trim the size of their herds, and some may quit the business in the months ahead. On balance, higher crop prices have brightened agriculture's income prospects only modestly, due to lingering problems in the cattle industry.
Wages and prices
Wage and price pressures remain subdued. Labor markets are tight in
much of the district, and both minimum-wage and skilled workers are
in short supply in some parts of the district. Reports of rising
wages, however, are few and widely scattered. Manufacturers continue
to report rising prices for some raw materials, such as packaging
materials and aluminum. At the retail level, however, prices remain
steady.