‹ Back to Archive Search
Beige Book Report: Kansas City
June 2, 2021
Summary of Economic Activity
Conditions in the Tenth District economy continued to improve at a moderate pace in April and May, and contacts in most sectors anticipated additional gains in the months ahead. Consumer spending increased moderately as retail, restaurant, and tourism sales rose. Sales exceeded pre-pandemic levels for the majority of retail, restaurant, and auto contacts, while tourism and healthcare sales remained below pre-pandemic levels. Manufacturing activity expanded robustly, and almost two-thirds of manufacturers reported that new orders were at or above pre-pandemic levels. Contacts also reported sales gains in the wholesale trade, professional and high-tech, and transportation sectors. Residential real estate activity increased and home prices rose robustly as inventories fell further from already low levels. Commercial real estate activity increased slightly for the first time since the pandemic started. The energy sector expanded as production, commodity prices, and capital expenditures moved higher. The farm economy remained strong, but drought conditions continued to strain producers in the western part of the region. Employment rose at a modest pace, and wages increased moderately. Input prices increased robustly, while selling prices increased at a moderate pace.
Employment and Wages
District employment continued to increase modestly during the survey period in both the services and manufacturing sectors, with a slight majority of contacts in both industries indicating that employment levels were now at or above pre-pandemic levels. Recent employment gains in the services sector were driven by hiring in the retail and wholesale trade industries, while transportation, auto, and real estate contacts reported slight declines. Looking ahead, services contacts expected modest increases in employment in the coming months, with slightly stronger gains in tourism and wholesale trade. Manufacturers anticipated both employment levels and hours to rise moderately in the next few months.
The majority of contacts reported labor shortages, with many contacts noting demand for all positions and several others in need of truck drivers and technicians. More than three-quarters of contacts reported that the inability to find workers with the required skills was restraining hiring plans. Wages rose moderately, and while the majority of contacts expected wage growth to remain moderate throughout 2021, more than one-third of manufacturing and services contacts expected to raise wages by 4 percent or more at their firms.
The prices of raw materials rose robustly in both the manufacturing and services sectors since the previous survey, while selling prices increased at a slightly more moderate pace. The majority of respondents also indicated that selling prices were above pre-pandemic levels. More than one-third of contacts reported that rising materials prices and supply issues, such as lack of availability or increased delivery times, were having a strong negative effect on their firm, and an additional one-third of contacts reported a slight negative impact from these factors. About 80 percent of contacts expected these factors to persist for 12 months or less. Contacts in both sectors expected input prices to continue to rise robustly over the next six months, while the growth rate of selling prices was anticipated to accelerate.
Consumer spending grew moderately over the survey period, and the majority of contacts noted that sales were above pre-pandemic levels. The strongest sales gains in April and May were observed in the retail, restaurant, and tourism sectors. Compared to pre-pandemic levels, more than 70 percent of retailers and half of restaurant owners indicated higher sales, while the majority of tourism contacts continued to report lower sales. Health services and auto sales held fairly steady since the previous survey, with health services sales still below pre-pandemic levels and auto sales above. Respondents across all consumer sectors expected sales gains in the coming months, with restaurant and tourism contacts expecting particularly strong gains.
Manufacturing and Other Business Activity
Manufacturing activity expanded robustly since the last survey as production and new orders increased at both durable and nondurable goods plants, albeit with stronger gains among durable goods producers. Almost two-thirds of respondents indicated that new orders were either at or above pre-pandemic levels. Looking ahead, both durable and nondurable goods manufacturers expected moderate gains in production, new orders, and capital expenditures in the coming months.
Outside of manufacturing, sales rose robustly at wholesale trade firms, moderately at transportation firms, and modestly at professional and high-tech services firms in May. In addition, capital expenditures increased modestly over the survey period in all three sectors. Transportation and wholesale trade contacts expected moderate-to-strong sales gains over the next six months, while sales at professional and high-tech services firm were expected to continue to rise moderately.
Real Estate and Construction
Residential real estate activity continued to expand moderately in April and May, while commercial real estate activity increased slightly for the first time since the pandemic started. Home prices sustained robust growth as sales increased moderately and inventories continued to decline. Contacts expected these trends to continue in the coming months. Construction supply sales rose modestly since the last survey, and similar gains were expected in the next few months. Commercial real estate contacts noted modest increases in absorption rates, sales, prices, rents, and construction as well as a slight decrease in vacancy rates. Growth in commercial sales and construction was expected to pick up in the coming months, and vacancy rates were expected to fall modestly. However, developers' access to credit was expected to become modestly more difficult.
Loan demand rose slightly since the previous survey, with gains driven by modest growth in the demand for consumer installment loans and slight growth in the demand for commercial real estate loans. Commercial, industrial, and residential real estate loan demand held steady, while demand for agricultural loans declined modestly. Credit standards remained stable across all lending categories, and bankers reported that overall loan quality had improved strongly since last year. Additional improvement in loan quality was anticipated over the next six months. Deposit levels increased robustly in recent weeks, with anecdotal evidence suggesting the increase is concentrated in liquid accounts, such as demand deposit accounts and savings accounts.
District energy activity expanded in April and May as the number of active oil and natural gas rigs rose due to the addition of several oil rigs in Oklahoma. With a larger number of active rigs compared with a year ago, production levels also increased modestly. Multiple firms indicated capital spending plans aimed at increasing production in 2021 while reducing costs after restructuring over the past year. Employment in the energy sector inched up slightly across the District since the last survey period, but the number of jobs remained considerably below year-ago levels. A slight increase in commodity prices since the last survey period supported higher revenues and profits for regional firms. Contacts across the District expected stable to slightly higher oil prices for the remainder of the year as impacts from the pandemic continue to wane and demand recovers.
The Tenth District farm economy remained strong, but drought continued to strain all types of producers in the western part of the region. Prices for corn, soybeans, wheat, cotton, and hogs increased in recent weeks and remained at multi-year highs through the early part of May. In contrast, prospects for the cattle industry remained subdued as cattle prices were near pre-pandemic levels but profit opportunities were limited due to elevated feed costs. Alongside severe drought in the western portion of the District, the wheat crop was in poorer condition in Colorado relative to other states. Contacts also reported that the impact of drought on pasture quality and hay production continued to worsen.