Beige Book Report: Kansas City
September 6, 2017
Summary of Economic Activity
Economic activity in the Tenth District increased modestly in late July and August, and most sectors expected moderate growth in future months. Professional, high-tech, and wholesale trade firms reported a strong increase in sales, and manufacturing activity expanded at a moderate pace. District energy activity expanded modestly compared to the previous survey period, and bankers reported steady to improving overall loan demand, stable deposit levels, and unchanged loan quality. District real estate activity continued to increase at a slight pace, while consumer spending contacts indicated growth was unchanged since the previous survey period. Agricultural conditions weakened but at a slower pace, with subdued farm income and slightly lower farmland values. In addition, transportation contacts indicated slightly lower sales than the previous survey period. Employment and employee hours rose slightly in late July and August, and contacts in most sectors reported moderate wage growth. Input prices were up moderately over the previous survey period, while selling prices increased modestly in most sectors.
Employment and Wages
Employment and employee hours across the District rose slightly in late July and August over the previous survey period, and modest increases were expected in coming months. Contacts in the wholesale trade, professional and high-tech services, real estate, education, health services, and manufacturing sectors reported an increase in employment, while contacts in the retail trade, auto sales, transportation, restaurants, and tourism and hotels sectors noted a decline. All sectors except the auto sales and tourism sectors expected an increase in employment in the months ahead. Since the previous survey period, average employee hours rose for all sectors except the retail trade, auto sales, and health services sectors, which experienced declines. Respondents noted a shortage of commercial drivers, salespeople, and service workers.
Contacts in most sectors reported moderate wage growth, and expectations in the coming months were for strong wage growth.
Prices
Overall, input prices were up moderately compared to the prior survey period, while selling prices increased modestly and contacts expected additional price increases in the months ahead. Respondents in the retail sector reported moderately higher input and selling prices, with both expected to continue to rise moderately moving forward. Restaurant input prices grew at a moderate pace, while selling prices edged up. Selling prices in the transportation sector declined slightly, while input prices were up moderately after falling in the previous survey. Construction prices continued to expand modestly with slight increases anticipated in the coming months. Manufacturers reported slight growth in prices for finished goods, and raw material costs continued to edge higher. Manufacturers expected moderate increases in both finished goods and raw material prices over the next few months.
Consumer Spending
Consumer spending was mostly flat in late July and August, while expectations for future growth increased at a modest pace. Retail sales decreased slightly over the previous survey period, but remained above year-ago levels. Several retailers noted an increase in sales for apparel and discounted items, while higher-priced products sold poorly. Contacts anticipated sales to rise moderately in the next few months, and inventory levels were expected to increase modestly. Auto sales fell moderately, but were slightly above year-ago levels. Dealer contacts anticipated a further slowdown in sales for the months ahead. Auto inventories were expected to rise slightly heading forward. Restaurant sales increased strongly and were well above year-ago levels. Contacts expected a moderate increase in activity heading forward. District tourism activity decreased slightly in late July and August, and was lower than a year ago. Tourism contacts expected activity to fall further heading into the fall months.
Manufacturing and Other Business Activity
Manufacturing activity expanded at a moderate pace in late July and August, and the majority of other business contacts reported moderate sales increases. Manufacturers reported sustained moderate growth in production, particularly for metals, aircraft, and electronics products. Shipments, new orders, and order backlog grew at a solid pace, and activity was higher than a year ago. Manufacturers' capital spending plans rose moderately, and firms' expectations for future activity remained favorable.
Outside of manufacturing, professional, high-tech, and wholesale trade firms reported strong sales increases, while transportation contacts indicated slightly lower sales than the previous survey. All firms expected a strong improvement in sales in the next six months. Professional, high-tech, and wholesale trade firms reported strong capital spending plans, while transportation firms anticipated a slight decrease in capital expenditures heading forward.
Real Estate and Construction
Overall District real estate activity continued to increase at a slight pace in late July and August. Residential home sales were flat since the previous survey period, and contacts anticipated no change in the coming months. Sales of low- and medium-priced homes continued to outpace sales of higher-priced homes. Residential home prices and inventories were modestly higher than the previous survey period. Residential construction activity continued to expand at a slight pace, as construction supply activity remained flat while new home starts and traffic of potential buyers rose. Expectations for overall residential construction activity were for a modest increase in the months ahead. Commercial real estate activity continued to expand modestly, as absorption, completions, construction underway, sales, and prices rose, while vacancy rates declined. Commercial real estate activity was expected to continue to increase at a modest pace moving forward.
Banking
Bankers reported steady to improving overall loan demand for the month of August. A majority of respondents indicated a stable demand for commercial and industrial, commercial real estate, agricultural, and consumer installment loans. Demand for residential real estate loans was mixed among respondents. Most bankers indicated loan quality was unchanged compared to a year ago. In addition, most respondents expect 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 rose at a modest pace since the last survey period, and expectations for future activity remained positive. The number of active oil and gas drilling rigs increased modestly across the District, particularly in Oklahoma. With rising rig counts and relatively stable oil and gas prices, oil and natural gas production is projected to continue to increase in the District's Niobrara and Anadarko shale regions through September. Natural gas activity has picked up modestly since the last survey period, particularly in the Arkoma basin in Oklahoma.
Agriculture
The District farm economy continued to soften since the previous reporting period, but the pace of the decline slowed somewhat. Crop prices decreased modestly in late July and August due to an increase in production expectations for the year. Livestock prices also declined modestly and some cattle feedlots reported modest losses. Although District contacts continued to report a decrease in farm income and loan repayment rates, the pace of the decline was slower than in recent periods. The continued decline in farm income again pushed farmland values lower, but only slightly, as values also appeared to stabilize in some parts of the District. In general, agricultural credit conditions continued to weaken and were expected to decline further in coming months.
For more information about District economic conditions visit: www.KansasCityFed.org/Research/RegionalEconomy