Beige Book Report: Kansas City
April 16, 2014
The Tenth District economy grew moderately in March, and most contacts were optimistic about future activity. Consumer spending increased despite flat auto sales, with solid sales expectations heading forward. District manufacturing activity grew further, and professional, high-tech, and health service firms reported improved sales. Commercial and residential real estate activity strengthened, and energy activity expanded. Bankers noted slightly higher loan demand, better loan quality, and rising deposits. In agriculture, District crop conditions remained dry, and livestock prices increased due to low inventories and strong export demand. Transportation firms reported some moderation in sales growth. Prices increased in most industries, with slightly more firms reporting higher wage pressures and labor shortages for skilled positions than in previous surveys.
Consumer Spending
Consumer spending increased moderately from the previous period, and contacts were more optimistic as weather conditions improved. Retail sales increased from the previous survey and were up considerably from a year ago. Several retailers noted stronger sales of discounted items and warm-weather products. Expectations for future sales also rose, and store inventories increased moderately. Auto sales were flat in March and similar to year-ago levels. However, expectations for future sales were notably better and contacts said light, mid-sized vehicles sold particularly well. Auto inventories rose but at a slower pace than in previous surveys. Restaurant sales increased, especially for value and take-out items, but activity remained similar to year-ago levels. Contacts expected restaurant sales to rise further in coming months. Tourist activity improved in March, and several hotels noted increased occupancy rates. Tourism contacts expected future activity to rise further.
Manufacturing and Other Business Activity
District manufacturing activity grew at a slightly faster pace in March, with some contacts attributing improved activity to better weather conditions. Production increased at all types of plants, particularly among machinery and plastics manufacturers. Shipments and new orders also rose, while employment was flat. Expectations for future factory activity were mostly stable and generally solid overall, although capital spending plans eased somewhat. Contacts in professional and high-tech services, healthcare services, and wholesale trade reported generally higher sales than the previous survey period. Wholesale trade firms noted an increase in capital spending plans and a positive outlook for future sales, while expectations for professional and high-tech activity were not quite as strong. Transportation firms reported slower growth in March, but contacts expected moderate growth over the next six months. One contact mentioned capacity concerns due to equipment and driver shortages.
Real Estate and Construction
Commercial and residential real estate sales strengthened, and construction increased moderately from the previous survey period. Residential realtors reported stronger sales since the last survey period due in part to seasonal factors and improved weather conditions. Home sales were flat compared to a year ago, with low- and medium-priced homes continuing to sell well, while higher-priced home sales remained weak in most of the District. Residential home inventories fell further, putting upward pressure on prices. Inventories were expected to stabilize, and prices were expected to continue to rise in the near term. Construction supply and builder contacts reported stronger activity since the previous survey period and compared to last year. Builders reported moderate growth in the number of starts, and construction activity was expected to increase in the coming months, with prices and buyer traffic both expected to increase modestly. Mortgage activity was flat since the previous survey but was expected to increase in the coming months with a rise in home purchases. Commercial real estate contacts continued to report a decline in vacancy rates, a slight increase in absorption, and higher sales. Commercial construction activity strengthened since the last survey period and was higher than a year ago. Commercial real estate contacts expected both construction and prices to increase further in the coming months.
Banking
Bankers reported a slight increase in overall loan demand, improved loan quality and increased deposits levels in April. Respondents reported a minor increase in demand for commercial real estate loans. Most respondents reported steady demand for commercial and industrial loans, consumer installment loans and agriculture loans. Demand for residential real estate loans was mixed during the survey period but improved compared to the prior survey. Bankers reported stable or improving loan quality compared to a year ago, and all bankers expected the outlook for loan quality to either improve or remain the same over the next six months. Credit standards remained largely unchanged in all major loan categories, and respondents reported an increase in deposits.
Energy
Energy activity expanded in March. Contacts reported solid drilling and business activity, and expectations for the coming months were positive. The number of active oil and natural gas rigs in the District edged up in March. Natural gas and natural gas liquids prices stabilized after rising in recent survey periods but contacts expected them to stay above average in the coming months. Crude oil spot and futures prices increased slightly since February and are expected to remain stable heading forward. High spot prices, especially for oil, continued to drive plans for strong capital expenditures in 2014. Hiring in the industry grew at a strong pace, but several contacts noted a sustained shortage of skilled labor.
Agriculture
Crop growing conditions remained dry in March, while livestock prices increased further since the last survey period. The winter wheat crop was in need of moisture and rated in mostly fair to poor condition. Spring fieldwork began, and District farmers followed national trends by intending to plant slightly more soybeans and less corn. With crop prices still lower than a year ago, farm operating loan demand rose this year as farmers financed a larger portion of crop input costs. However, global supply concerns supported strong exports, and crop prices rose to a six-month high during the reporting period. Low cow inventories kept feeder cattle prices elevated, and strong export demand supported higher fed cattle prices. In addition, hog prices surged as the on-going swine virus cut inventories further.
Wages and Prices
Prices rose in most industries, and wage pressures increased slightly in some industries, particularly for skilled positions. Retail prices edged up, with further increases anticipated. Prices of manufacturing materials increased modestly compared to the previous period, although slightly fewer firms planned on raising selling prices. Transportation firms reported higher input and selling prices, and restaurants noted a considerable rise in food costs and menu prices. Construction materials prices moved slightly higher, particularly for drywall and roofing, and were expected to increase further. Many contacts continued to cite concerns about future costs for health care and the potential for minimum wage reform. Wage pressures increased slightly in some industries, especially manufacturing. Many contacts noted difficulties finding qualified labor, particularly for truck drivers, machinists, high-tech, and other types of skilled workers.