Beige Book Report: Kansas City
July 12, 2017
Summary of Economic Activity
Economic activity in the Tenth District expanded moderately in June, and most sectors expected additional gains in the months ahead. Consumer spending increased at a moderate pace, with retail, restaurant and tourism contacts reporting stronger sales than the previous survey period. Manufacturing activity picked up moderately, and professional, high-tech, and transportation contacts reported strong increases in sales. Capital expenditures were anticipated to rise in the manufacturing, professional and high-tech industries, while wholesale trade and transportation firms expected a modest decline. Residential and commercial construction activity rose in June, but home sales declined slightly as low inventories constrained sales. The number of active drilling rigs continued to increase, but the pace of growth was expected to slow in coming months. District farm revenue remained subdued as most agricultural commodity prices remained low. Employment and wages increased modestly since the previous survey period, and contacts expected moderate wage growth in the coming months. Input prices were up modestly in most sectors, and selling prices were mixed.
Employment and Wages
District employment and employee hours continued to increase modestly in June, and contacts expected additional gains in the months ahead. Contacts in the retail, wholesale trade, professional and high-tech services, tourism, health services and real estate sectors reported a modest increase in employment since the previous survey period, while employment held steady in auto sales and restaurants. All sectors anticipated higher employment levels in the coming months except for the auto sector which expected a slight decrease. Average employee hours rose since the previous survey in the services and manufacturing sectors and were above year-ago levels. Several contacts noted a shortage of commercial drivers, salespeople, and service workers.
Wages rose modestly in most sectors in June, and moderate wage growth was anticipated in the coming months.
Prices
Input prices were up modestly in most sectors compared to the previous survey period, while selling prices were mixed. In the retail sector, selling prices edged up, and input prices continued to rise, but at a slower pace than in the prior survey. Restaurant contacts reported slight declines in both input and selling prices, but expected both prices to pick up in the months ahead. Input prices in the transportation sector rose at a modest pace, while selling prices increased slightly. Prices in the construction sector rose modestly, with slight increases anticipated in the coming months. Manufacturers reported slight decreases in finished goods prices, while raw material costs continued to edge higher. Manufacturers anticipated modest growth in both finished goods and raw material prices over the next few months.
Consumer Spending
Consumer spending increased moderately, and additional moderate gains were expected in the months ahead. Retail sales rose at a moderate pace and were well above year-ago levels. Several retailers noted stronger sales for lumber and building materials, while luxury and higher-priced products sold poorly. Retail contacts anticipated sales to grow moderately in the next few months, and inventory levels were expected to remain stable. Auto sales stabilized in June after declining for several months and were slightly above year-ago levels. Dealer contacts anticipated a moderate increase in auto sales in the months ahead. Restaurant sales picked up moderately since the previous survey, and modest gains were expected in the coming months. District tourism activity increased moderately and remained above year-ago levels. Tourism contacts anticipated moderate increases in activity during the summer months.
Manufacturing and Other Business Activity
Manufacturing activity continued to expand at a moderate pace in June, and most other business contacts reported improved sales. Manufacturers reported moderate growth in production, particularly for aircraft, plastics, and chemical products. Shipments and new orders expanded modestly, and activity was considerably higher than a year ago. Manufacturers' capital spending plans were mostly positive, and firms' expectations for future activity remained strong.
Outside of manufacturing, professional, high-tech, and transportation firms reported strong sales increases, while wholesale trade contacts reported a more modest growth in sales. Most firms expected a moderate improvement in sales in the next six months. Professional and high-tech firms expected capital spending to increase moderately heading forward, while wholesale trade and transportation firms anticipated a modest decline in capital expenditures.
Real Estate and Construction
District real estate activity expanded slightly since the previous survey period, and respondents expected further gains moving forward. Residential home sales declined slightly from the previous month, with sales of low- and medium-priced homes outpacing sales of higher-priced homes. Residential home inventories moved modestly lower from year-ago levels. Contacts expected low inventories to constrain sales in the next few months and anticipated sales would be flat. Residential construction activity grew slightly, as housing starts and traffic of potential buyers rose, while construction supply sales were stable. Respondents expected overall residential construction activity to increase moderately in the months ahead. Commercial real estate activity continued to expand modestly as vacancy rates declined and absorption, completions, construction underway, sales, prices and rents increased. A modest expansion in the commercial real estate sector was anticipated in the coming months.
Banking
A majority of banking respondents indicated stable demand for commercial and industrial, commercial real estate, residential real estate, and consumer installment loans. Demand for agricultural loans was mostly mixed in June. Most bankers indicated loan quality was unchanged compared to a year ago, and expected loan quality to remain essentially the same over the next six months. Credit standards remained largely unchanged in all major loan categories, and a majority of respondents reported stable deposit levels.
Energy
Energy activity rose at a modest pace, while expectations eased slightly but remained positive. The number of active oil and gas drilling rigs continued to increase across the District, but respondents expected the pace of growth to slow in the coming months due to flat prices and the continued oversupply of oil. Contacts also reported a moderate decline in access to credit, particularly from banks, while private equity continued to be readily available. Expectations for future oil and gas prices moderated somewhat as a result of the continued increase in U.S. oil production and ample natural gas supply. Furthermore, contacts said that although the oil and gas prices needed to increase drilling substantially has continued to decline modestly, it remained above their current one-year ahead price expectations.
Agriculture
District farm revenue remained subdued since the previous reporting period as most agricultural commodity prices remained low. Corn and wheat prices increased slightly, but were lower than a year ago due to elevated global supplies. Similar to last year, District contacts reported that corn and wheat prices remained below levels generally thought to be profitable and financial stress continued to increase at a gradual pace for many producers. Soybean prices declined slightly from the previous reporting period and were also slightly less than a year ago. Livestock operators were slightly more optimistic than earlier, as cattle prices increased modestly from a year ago. Hog prices also increased modestly from the previous reporting period as global demand for meat products remained relatively strong.
For more information about District economic conditions visit: www.KansasCityFed.org/Research/RegionalEconomy