Beige Book Report: Kansas City
January 21, 1998
The district economy continued to grow moderately the past month. Retail sales increased over the holidays, energy activity improved, and manufacturing activity remained fairly strong. The only sign of weakness was a slight slowdown in construction activity. In the farm economy, the winter wheat crop is in good shape and ranchers are expected to benefit from good quality pasture. Labor markets remain tight in much of the district, with more evidence of wage pressures than in the recent past. Prices edged up for some manufacturing materials and at the retail level.
Retail Sales
Retailers report sales increased last month during the holiday
season but were generally unchanged from a year ago. Retailers
remain optimistic that sales will hold steady or edge up over the
next three months. Most retailers were satisfied with current stocks
but expect to trim inventories slightly in the coming months.
Automobile dealers report sales edged up last month but were
slightly lower than a year ago. Sales of sport utility vehicles
remained strong, while sales of other vehicles held steady. Dealers
have kept inventories unchanged as they expect no major shifts of
sales in the coming months.
Manufacturing
Manufacturing activity continued to expand last month, with plants
operating at moderately high levels of capacity. Purchasing agents
reported some difficulties obtaining materials due to rail-shipping
delays, which increased lead times. Some agents expect rail-
transportation problems to continue in the near future. In spite of
a moderate decline in inventories last month, most manufacturers say
they plan further reductions because stocks exceed desired levels.
Housing
Builders report housing starts were down slightly last month but up
somewhat from a year ago. Builders anticipate a normal seasonal
improvement in construction activity in the coming months. Sales of
new homes edged down last month due primarily to seasonal factors,
resulting in a slight increase in inventories of unsold new homes.
Most building materials were readily available and delivery times
were normal. Mortgage lenders say demand was unchanged last month,
but demand is expected to increase somewhat in coming months as more
consumers refinance mortgages.
Banking
Bankers report that both loans and deposits increased last month,
while loan-deposit ratios edged downward. Loans increased in all
categories except consumer loans and home equity loans, which were
flat. Increases in demand deposits, NOW accounts, and money market
deposit accounts outweighed declines in large CDs and small time
deposits.
All respondent banks left their prime lending rates unchanged last month and most expect to hold rates steady in the near term. Most banks did not change their consumer lending rates and anticipate no future changes. Lending standards were unchanged at most banks.
Energy
District energy activity improved last month after declining for
three consecutive months. Crude oil prices fell but not as much as
natural gas prices. Both prices remained well below year ago levels.
Despite lower prices, the district rig count was up 11 percent in
December to a level 17 percent higher than a year ago.
Agriculture
The district's winter wheat crop is in good shape with favorable
growing conditions, and wheat pasture is reported as good to
excellent. Good quality wheat pasture should benefit ranchers
planning to graze calves through the winter. Area bankers indicate
that ranchers have experienced a rebound, and cattle loan portfolios
are healthier than a year ago. The railroad shortage did not appear
to have a significant impact on district producers and businesses.
However, the shortage of rail cars did pose a slight delay in
transporting grain.
The financial condition of district farmers is extremely strong, perhaps the best in recent years. The majority of the farm loan portfolios in the district are doing well, with very few loans turned down due to financial weakness. Loan demand is expected to increase in grain-producing areas, while areas of the district that produce livestock are not anticipating an increase in demand. Due to healthy profits for district farmers, farm equipment dealers are enjoying a substantial increase in sales, while auto and truck sales have risen more slowly.
Wages and Prices
Labor markets remained tight last month in much of the district,
with somewhat more evidence of wage pressures than in previous reports.
Retailers and manufacturers report a shortage of workers at almost
all levels. Builders say framers and other skilled tradesmen are
hard to find. And respondents from many firms complain that computer-related
positions can not be filled. Some companies have raised wages more
than in the recent past to attract or retain workers, while many
say wage increases were about average. Most retailers report steady
prices, while a few say prices edged up last month. Prices increased
slightly for some manufacturing materials, such as metals, while
prices of construction materials held steady. Retailers expect prices
to decline slightly in the coming months.