Beige Book Report: Kansas City
March 01, 2017
Summary of Economic Activity
District economic activity continued to expand modestly compared to the previous survey period, and contacts in most sectors expected additional gains in the months ahead. Consumer spending in January was modestly above year-ago levels, with retailers and auto dealers expecting stronger sales in the next few months. The manufacturing sector continued to expand moderately, and contacts in the professional, high-tech, transportation and wholesale trade sectors reported increased sales. District real estate conditions were mixed as activity in the residential sector fell slightly and the commercial real estate sector expanded modestly. Energy activity increased moderately, and energy contacts remained optimistic, although some noted concerns about labor availability and increases in the costs of oilfield services. District farm income remained subdued, and agricultural credit conditions weakened modestly. Employment and employee hours edged up in January, and wages increased slightly. Prices rose slightly since the previous survey.
Employment and Wages
Employment and employee hours edged up in January. Respondents in the professional and high-tech services, real estate, health services and manufacturing sectors noted an increase in employment levels since the previous survey, while respondents in the transportation, restaurant, and tourism sectors noted a decline. Employment in the retail sector was higher than year-ago levels, and employment in the auto sector remained steady. Contacts across all sectors, except auto and tourism, expected an increase in employment in the coming months. Average employee hours picked up in both the manufacturing and service sectors since the previous survey period, and additional gains were expected in the next few months. Respondents noted a shortage of commercial drivers, salespeople, and service workers.
Contacts in most sectors reported that the pace of wage growth slowed compared to the prior survey, but wages still rose slightly. In addition, moderate wage growth was anticipated in the coming months.
Prices
Overall, input prices rose slightly compared to the prior survey period, and contacts expected additional price increases in the months ahead. Respondents in the retail sector reported slightly higher input prices but held selling prices steady. Restaurant input prices were stable, while menu prices edged up. In the transportation sector, input prices rose moderately and selling prices increased modestly. Both input and selling prices were expected to grow moderately in the months ahead in the transportation sector. Construction prices rose slightly, and moderate price increases were anticipated in the coming months. Manufacturers reported steady prices for finished goods, while raw material costs continued to edge up. Manufacturers anticipated slight increases in both finished goods and raw materials prices in the next few months.
Consumer Spending
Consumer spending increased modestly in January compared to year-ago levels, and respondents expected additional gains in the months ahead. Retail sales remained above year-ago levels, despite being lower than the previous survey period. Several retailers noted an increase in sales for household appliances and sale items, while luxury and seasonal products sold poorly. Retailers anticipated sales to rise moderately in the next few months, and inventory levels were expected to increase slightly. Auto sales decreased since the previous survey, but remained modestly above year-ago levels. Dealer contacts expected a solid pickup in sales in the months ahead. Auto inventories were mostly flat but were expected to rise slightly. Restaurant sales in January were above year-ago levels, and contacts in the restaurant sector expected sales to remain relatively flat heading forward. District tourism activity was well above year-ago levels, but contacts expected a slight decline in activity heading into the spring months.
Manufacturing and Other Business Activity
Manufacturing activity continued to expand moderately, and other business contacts reported increased sales. Manufacturers reported considerable improvement in durable goods production since the previous survey, particularly for metals, electronics, and machinery, while nondurable goods plants expanded at a modest pace. Production, shipments, and new orders all increased compared to the previous survey. Manufacturers’ capital spending plans expanded moderately, and firms’ expectations for future activity were at their highest levels in over twelve years.
Outside of manufacturing, contacts in the professional, high-tech, and transportation sectors reported moderate increases in sales, with strong gains anticipated in future months. Wholesale trade contacts noted a slight uptick in sales and expected activity to increase sharply heading forward. Professional, high-tech, and wholesale trade firms reported favorable capital spending plans, while transportation contacts expected capital spending to continue to fall.
Real Estate and Construction
District real estate activity was mixed as residential real estate conditions deteriorated slightly while the commercial real estate sector expanded modestly. Residential home sales declined slightly, and inventories moved moderately lower since the previous survey period. Contacts expected a moderate increase in sales during the spring months due to seasonal factors. Home prices increased strongly, and sales of low- and medium-priced homes outpaced sales of higher-priced homes. Housing starts declined, but construction supply sales increased. Respondents expected overall residential construction activity to increase in the months ahead. Activity across the commercial real estate sector expanded modestly in January and early February as vacancy rates declined and absorption, completions, construction underway, sales and prices increased. Contacts expected the commercial real estate sector to expand further in the coming months.
Banking
Most bankers reported steady overall loan demand in January and early February. A majority of respondents indicated a steady demand for commercial and industrial, commercial real estate, residential real estate, agricultural and consumer installment loans. Most bankers indicated loan quality was unchanged compared to a year ago. In addition, a majority of respondents expected loan quality to remain essentially the same over the next six months. Credit standards remained largely unchanged in all major loan categories. Finally, a majority of respondents reported stable deposit levels.
Energy
Energy activity across the District increased moderately in January and early February, and the outlook remained optimistic. The number of active oil and gas drilling rigs continued to increase modestly, primarily in Oklahoma and New Mexico as activity focused on the Oklahoma SCOOP and STACK plays and the Permian Basin in New Mexico. Respondents expected global markets to balance by mid-year, and thus, projected oil prices to increase further throughout 2017. However, they remained cautious given the rapid increase in domestic activity. Some respondents expressed concern about labor availability and increases in the costs of oilfield services. On the natural gas side, spot prices fell somewhat in January amid warmer-than-usual temperatures. However, lower natural gas production was expected to keep prices from falling significantly.
Agriculture
Farm income remained subdued in the Tenth District, and farmland values declined modestly since the last reporting period. Cattle, wheat, and corn prices were lower than a year ago in early February and continued to weigh on farm income in the District, despite slight improvements in hog and soybean prices. All District states reported slightly lower farm income and expected further declines in the coming months. Farmland values and cash rental rates for farmland continued to trend lower at a modest pace and were also expected to decline further in the months ahead. Alongside persistent declines in farm income and farmland values, agricultural credit conditions weakened modestly, as farm loan repayment rates edged lower and demand for short-term financing remained strong.