Beige Book Report: Kansas City
September 11, 1996
Overview
The district economy grew at a moderate pace during the
past month. Manufacturing and construction remained strong but
showed signs of slowing from the brisk pace of previous months.
Retail sales improved modestly, and energy activity slowed. In the
farm economy, income prospects improved for crop producers while
losses continued to mount for many cattle producers. Labor markets
remained tight in much of the district, although reports of rising
wages remain scattered and confined mainly to retailers. Retail
prices held steady.
Retail Sales
Retailers report sales improved modestly during the
past month and remained above last year's level. Sales of men's and
children's apparel were particularly strong and most retailers
expect sales in general to increase over the remainder of the year.
Most retailers were satisfied with inventory levels, although some
expect to expand inventories as they gear up for the holiday season.
Automobile dealers report sales slowed somewhat from the brisk pace
of recent months. The slowdown was due mainly to a lack of inventory
during the changeover to new models. Demand reportedly remains
strong, especially for light trucks and sport utility vehicles, and
dealers expect sales to pick up after inventories of new models are
in place.
Manufacturing
Most manufacturers continued to operate at high
levels of capacity last month, although signs of slowing were
evident. Manufacturing materials were generally available, with some
recent improvement in lead times. Manufacturers were trimming
inventories, and some expect to continue trimming over the next few
months.
Housing
Most builders report housing starts leveled off last month
to about last year's level. While single-family homes accounted for
most of the construction activity, multifamily building picked up.
Builders expect homebuilding activity to remain solid in the coming
months with a normal seasonal slowdown toward the end of the year.
Sales of new homes weakened during the month but remained above last
year's pace. Inventories of unsold homes were reported at normal
levels. Many builders report tight markets for construction labor,
although materials were readily available. Mortgage lenders report a
slight increase in mortgage demand over the past month and expect
demand to remain strong in coming months.
Banking
Loan demand at district banks held steady last month.
Consumer, construction, home mortgage, and commercial and industrial
loans remained unchanged. Commercial real estate loans showed solid
gains, while home equity loans increased slightly and agricultural
loans decreased. A decrease in total deposits at district banks
resulted in slightly higher loan-deposit ratios. Large CDs slipped,
while demand deposits, NOW accounts, IRA and Keogh accounts, and
small time and savings deposits held roughly constant. MMDAs
increased slightly.
One respondent bank increased its prime rate last month. None of the other banks expect to change their prime rate soon. Most of the respondents held their consumer lending rates steady and plan to keep them unchanged in the near term. Almost a third of the respondent banks tightened their lending standards last month.
Energy
Lower oil and natural gas prices damped activity in the
district energy industry in recent weeks. The district rig count
fell slightly in August but remained 5.6 percent above year-ago
levels. In contrast, coal production in Wyoming continued to record
strong gains.
Agriculture
The district's corn and soybean crops remained in
excellent condition during the past month. The crops are maturing on
schedule and the chances of widespread damage from an early frost
this fall are small. With corn and soybean prices strong, district
crop farmers should enjoy a significant income boost this year.
Income prospects for district livestock producers are not so bright. Cattle feeders have returned to thin profits recently, while ranchers continue to post substantial losses. In response to ongoing losses, many district ranchers have trimmed their herds significantly this summer. Industry participants report contraction in the cattle numbers could end this fall due to improved pasture conditions, ample hay supplies, and expectations that corn prices will drop as the harvest gets under way. Having sustained losses earlier in the year, most cattle feedlots in the district operated well below capacity during the past month. The cutback in cattle on feed has reduced beef supplies enough to push prices slightly above break-even levels. Nevertheless, many bankers expect a heavy inflow of calves into district feedlots this fall, which could renew downward pressure on cattle prices and erode profit margins.
District bankers report stronger crop loan portfolios and weaker livestock loan portfolios than a year ago. Bankers in wheat-growing areas in the district report that high wheat prices have generally offset a disappointing wheat harvest, leaving the quality of loan portfolios unchanged. Bankers in areas growing corn and soybeans expect their loan quality to improve this year. In contrast, bankers report some continued erosion in the quality of ranching loans.
Wages and prices
Entry-level and skilled workers remain in short
supply in much of the district, and reports of rising wages among
retailers have increased somewhat. Wages in the manufacturing and
construction sectors, however, remained generally stable despite the
tight labor markets. Prices continued to hold steady at the retail
level, with retailers expecting little change in the months ahead.
District manufacturers also report stable input prices.