‹ Back to Archive Search

Beige Book Report: Kansas City

March 7, 2018

Summary of Economic Activity
Economic activity in the Tenth District continued to increase at a modest pace in late January and February, and a faster pace of expansion was expected in the months ahead. Consumer spending picked up modestly, as growth in the retail and tourism sectors more than offset a decline in restaurant and auto sales. Manufacturing contacts reported moderate growth including an increase in production, shipments, new orders, order backlogs, and capital spending plans. Sales rose moderately at transportation, wholesale trade, and professional and high-tech firms, and further gains were anticipated in the months ahead. District real estate conditions expanded modestly as activity in both the residential and commercial sectors increased. Banking contacts reported steady loan demand, unchanged loan quality and credit conditions, and steady-to-decreasing deposits. Energy activity continued to grow a modest pace as production increased and the number of drilling rigs edged higher. Agricultural conditions across the District remained weak, and farm income fell further. Employment and employee hours rose modestly compared to the previous survey period. Wages increased slightly in most sectors, and contacts expected stronger wage growth in the months ahead. Input and selling prices rose moderately, with stronger price gains in the retail sector.

Employment and Wages
District employment and employee hours rose modestly in late January and February, and contacts expected further gains in the months ahead. Respondents in the retail trade, transportation, professional services, real estate, restaurant, tourism, and manufacturing sectors reported employment growth, while contacts in auto sales, wholesale trade, and health services noted a slight decline. However, employment exceeded year-ago levels in all sectors. Employee hours increased in most sectors, but declined modestly in the restaurant sector. Labor shortages were reported in the services sector including commercial drivers, skilled technicians, and salespeople.

Wages picked up slightly in most sectors, and contacts anticipated moderate wage growth in the coming months.

Overall, input and selling prices increased moderately compared to the prior survey period, and additional moderate gains were expected in the months ahead. Retail contacts reported strong growth in input and selling prices and anticipated moderate increases moving forward. In the restaurant sector, input prices continued to rise slightly, while selling prices edged up after falling in the previous survey. Transportation contacts noted moderately higher input and selling prices and expected continued moderate growth in the coming months. Construction prices rose moderately in late January and February after declining in the prior survey period. Prices for finished goods increased slightly and raw material costs rose moderately in the manufacturing industry. Manufacturers expected moderate price gains for both finished goods and raw materials in the next few months.

Consumer Spending
Consumer spending activity picked up modestly in late January and February and was expected to increase further in the coming months. Retail sales increased at a moderate pace compared to the previous survey period and remained well above year-ago levels. Several retailers noted an increase in sales for lower-priced items, while higher-priced products sold poorly. Contacts anticipated retail sales to continue to rise in the next few months, and inventory levels were expected to increase moderately. Auto sales fell modestly but were slightly above year-ago levels. Dealer contacts anticipated a moderate pickup in sales in the months ahead, and auto inventories were expected to increase heading forward. Restaurant sales declined moderately but were well above year-ago levels. Contacts expected a strong pickup in restaurant activity in the months ahead. District tourism activity increased moderately since the previous survey and was similar to year-ago levels. Tourism contacts expected a strong increase in activity heading forward.

Manufacturing and Other Business Activity
Manufacturing and other business activity expanded at a moderate pace in late January and February. Manufacturers reported sustained growth in production, particularly for metals, machinery, and plastics products. Shipments, new orders, and order backlogs grew at a modest pace, and activity was higher than a year ago. Manufacturers' capital spending plans rose moderately, and firms' expectations for future activity remained strong.

Outside of manufacturing, transportation, wholesale trade, and professional and high-tech firms reported moderate growth in sales. Heading forward, transportation and wholesale trade firms expected strong sales growth, while professional and high-tech firms anticipated a moderate sales increase in the next six months. All types of firms reported moderate growth in capital spending plans.

Real Estate and Construction
District real estate activity increased at a modest pace in late January and February, and additional gains were expected moving into the spring months. Residential home sales and home prices rose moderately compared to the previous survey period, and inventories declined at a moderate pace. Sales of low- and medium-priced homes continued to outpace sales of higher-priced homes. Residential sales and home prices were anticipated to rise, while inventories were expected to fall further in the months ahead. Residential construction activity expanded slightly as home starts and traffic of potential buyers rose, while construction supply sales were flat. Commercial real estate activity increased modestly as absorption, completions, construction underway, and sales increased, while vacancy rates declined. Activity in the commercial real estate sector was expected to expand at a modest pace moving forward.

Bankers reported steady overall loan demand in late January and February. A majority of respondents indicated stable demand for commercial and industrial, residential real estate, and consumer installment loans. Demand for commercial real estate loans increased modestly, while contacts reported mixed demand for agricultural loans. Most bankers indicated loan quality was unchanged compared to a year ago and expected loan quality to remain stable over the next six months. Credit standards remained largely unchanged in all major loan categories. Bankers reported steady-to-decreasing deposits.

Energy activity continued to grow at a modest pace over the last six weeks. The outlook remained positive and somewhat cautious given the recent slight decline in commodity prices. The number of active oil and gas rigs continued to edge higher, primarily in New Mexico and Wyoming. Oil and gas production also picked up in Colorado's Niobrara basin, and growth was expected to be driven by operators completing their drilled-but-uncompleted (DUC) wells since the number of drilling rigs in the region remained relatively flat. In Oklahoma, natural gas activity continued to increase with the start of construction of a natural gas gathering system in the southeastern part of the state.

The Tenth District farm economy remained weak, but farm real estate values slowed their decline from the previous months, providing some stability for farm finances. Farm income continued to decrease. Agricultural credit conditions weakened further against year-ago levels, but at a more modest pace than in previous reporting periods. Although prices for most agricultural commodities increased slightly in February, prices for corn, soybeans and hogs were still lower than a year ago. Alongside an increase in cattle, wheat and cotton prices, farmland values declined only slightly and stabilized significantly in the western portion of the District. Conditions in the farm economy in Oklahoma also improved notably due to an increase in cotton acreage and a moderate increase in cotton revenues.

For more information about District economic conditions visit: www.KansasCityFed.org/Research/RegionalEconomy