Beige Book Report: Kansas City
May 14, 1975
Retail sales in the Tenth District have shown some improvement in recent weeks. Inventories are still being worked down, but seem to be close to desired levels. Moderately increasing retail sales are expected for the rest of this year. New car sales continue to be weak. An increase in prices received by farmers, after five months of decline, is likely to put upward pressure on food prices in the next few months. Loan demand at Tenth District commercial banks continues generally soft, although business loan demand has shown moderate improvement.
Retail sales in major metropolitan areas of the Tenth District have shown some improvement in recent weeks. Consumers are still shopping carefully for bargains, and much of the improvement is attributed to special sales and other promotional activity by sellers. Durable goods sales are not yet showing much general gain, although there are some reports of strengthening sales of furniture.
Most retailers see the impact of the tax rebate as primarily a confidence-booster for consumers. They do not expect much direct impact because of the relatively small size of the individual rebates. However, the majority of respondents apparently believe that the psychological effect of the tax cut package will have a positive influence of their sales.
Although some department stores are still working down their inventories, most respondents believe their stocks to be about in balance with current sales. With inventories now near desired levels, several retailers reported plans for "slow" or "gradual" increases in stocks during the rest of the year. Such plans seem to be in keeping with expectations of increasing sales—variously described as "a slow but steady increase"; "a normal rate of expansion" following a real turnaround by the third quarter; "very optimistic for fall"; and "a moderate expansion expected," but not overly optimistic.
Tenth District automobile dealers are apparently sharing in the weak performance of the industry nationally. Most reported their business stimulated by the rebate program, beyond those particular models on which rebates were paid, as a result of increased showroom traffic. Weaker sales after the rebate period ended also extended over a wider segment of the market. Inventory situations vary by dealership and by make of car—some are adding to inventories, a few are still overstocked in particular models, others are in a satisfactory position but are keeping a close eye on their stocks. Uncertainty and lack of confidence on the part of consumers is a theme in most of the discussions; not knowing what to expect in the way of gasoline prices and availability, government anti-pollution and safety requirements, the possible return of rebate programs, etc. Potential buyers are clearly acting in a way that underlines the "postpone-ability" of new automobile purchases. At the same time, used car sales are strong and prices relatively high.
Auto dealers expect no direct help from the tax rebate program. Customers at the majority of dealerships appear very interested in fuel economy as well as in the price of the car. However, there is no clear-cut evidence of movement to, or away from, a particular size of car.
A substantial increase in cattle and hog prices during the month ended April 15 reversed the five-month skid in prices received by farmers. Although farm prices as a whole rose 4 percent last month, they were still 8 percent below the year-earlier average. Nevertheless, this turnaround in prices—while gratifying to livestock producers—will likely keep pressure on food prices.
Recent strength in slaughter steer prices could signal a revival of the cattle feeding business. The number of cattle on feed as of April 1 was the lowest for that date since 1963, but March placements in the seven major feeding states were 20 percent above the previous year. Carryover stocks of wheat and feed grains at the end of the marketing year will be quite low by historic standards, but no shortages are foreseen. Although the export market for wheat and corn has softened, domestic prices should remain firm in view of the tight old-crop supply situation. Production prospects for 1975 indicate a record 2 billion bushel wheat crop is possible, and with a normal growing season feed grain production will likely achieve a new high. Thus, grain prices could weaken below current levels during the second half of the year.
Loan demand at Tenth District banks was generally soft over the last month. Agricultural, consumer, and, especially, bank card credit loans continued soft in all areas of the district. However, business loan demand showed moderate improvement, and some respondents in Kansas City and in Denver believe they detected an increase in interest in real estate and housing loan demand. One area of the Tenth District that seems especially hard pressed is Albuquerque, where loan demand for most categories of loans is reported to be down considerably.
Demand deposits have increased moderately, while time and savings deposits have fallen slightly. CDs in some areas of the district were running off, although Oklahoma City and Kansas City, where rates on some maturities were higher than in the rest of the district, reported CDs as being stable. Most CD rates tended to be just below the prime rate charged by the banks. Some respondents also expected the CD rate to decline an additional one-half percent.