Beige Book Report: Kansas City
June 23, 1987
Overview
Little change is apparent in overall Tenth District economic
activity. Retail sales generally are increasing slightly, but auto
sales are sluggish. Retailers report little change in prices while
manufacturers' purchasing agents report stable to moderately higher
input prices. Inventory levels are satisfactory. Housing starts
remain near last year's levels, and mortgage loan demand at savings
institutions has declined. The district's energy industry remains
generally depressed. Loan demand and deposits at district banks are
essentially unchanged. Winter wheat harvest is under way and yields
are expected to be about average.
Retail Sales
Tenth District retailers generally report that sales are about the
same as or above year-ago levels and have been improving during the
last three months. Most retailers report little change in prices
during the past three months, although one retailer reports dramatic
increases in the prices of imported goods. Inventory levels are
satisfactory. Retailers are generally optimistic that sales will be
solid during the rest of 1987.
Automobile Sales
Automobile dealers report that sales in May were below a year
earlier and a month earlier. Because of sluggish sales, inventories
are larger than desired. Financing is generally available for both
dealer inventories and consumer purchases. Dealers hope that sales
have bottomed out, and most are cautiously optimistic in their
outlook.
Purchasing Agents
Purchasing agents report that major input prices are stable to
moderately higher relative to a year earlier and that they expect
input prices to increase only moderately during the remainder of
1987. Some problems with materials availability were reported. The
Canadian lumber strike was blamed for a shortage of lumber, for
example. Few problems with material availability are expected for
the remainder of the year, however. Inventory levels are viewed as
generally satisfactory.
Housing Activity and Finance
Homebuilders report that housing starts remain at or slightly below
last year's levels. Single-family home construction remains stronger
than multifamily construction. Builders expect overall 1987 housing
starts to be near 1986 levels. Sales of new homes are up slightly,
with prices moderately higher than a year ago. New homes inventories
are not causing undue concern, No problems are reported with either
the availability or delivery of housing materials. Materials prices
are relatively stable.
Many savings institutions in the Tenth District have experienced weak deposit growth during the last year. Negative publicity about the FSLIC has dampened deposit inflows. Loan demand has fallen off since the April run-up in mortgage rates. Mortgage rates leveled off after their April increase, and most respondents believe that rates will remain near current levels in the near future.
Energy
The district's energy industry remains generally depressed despite
the fact that prices of domestic crude oil have remained near $20
for several weeks. Although OPEC is committed to keeping prices
stable, recent events in the Persian Gulf have made the outlook for
oil prices more uncertain. Exploration and development activity in
the district remains flat. The average weekly number of operating
drilling rigs in the Tenth District fell from 248 in April to 238 in
May, still about two-thirds of the number recorded a year earlier
and on]y 16 percent of the peak number reached in 1982.
Agriculture
Wheat harvest in the Tenth District is under way in Oklahoma and
parts of southern Missouri and Kansas. Although wheat acreage is
down in areas where a wet fall prevented some winter wheat planting,
yields across most of the district have not been adversely affected
by the weather. Wheat yields appear average in most parts of the
district. Grain storage capacity in the district should be adequate
for this year's wheat crop.
Spring crop planting was generally finished ahead of schedule due to favorable weather across most of the district. Most areas report that 80 to 100 percent of the corn, milo and soybean crops are planted, and many fields are showing good early growth.
Feedlots in the Tenth District are generally full, reflecting strong returns to cattle production over the last year and the renewed rise in beef prices since the first of the year. Few feeders are expanding their feeding capacity, however, and cow-calf and stocker- cattle operations do not appear to be adding to their herds. Growers appear reluctant to expand herds at the current high cattle prices and some bankers, fearing a drop in the market, are loaning less on the collateral value of the cattle purchased. District hog producers have reacted to strong market conditions much the same as cattle producers. Hog prices have been favorable over the past year and particularly strong in 1987, but there is little evidence of expansion in hog operations. Though some bankers report a moderate increase in hog inventories in their areas, there has been no sign of investment in new facilities.
Banking
Total loan demand and total deposits at Tenth District banks were
essentially unchanged during the past month. Demand weakened
slightly for consumer loans, but was constant for other types of
loans. About two-thirds of the respondents reported raising their
prime rates slightly while the rest expect their prime rates to
increase slightly in the near term. Half the respondents report
raising consumer loan rates slightly, and about a third expect their
consumer rates to rise slightly in the near term. Half the
respondents report no change in large CDs, while the other half
report an increase. Balances in other accounts remained constant.