Beige Book Report: Kansas City
December 1, 1987
Overview
Continued slight improvement is evident in the economies of Tenth
District states. Few adverse effects from the stock market decline
have been noted. Retailers have only modest expectations for holiday
sales, and auto dealers expect weak sales for the rest of the year.
Manufacturers' purchasing agents report no problems with the
availability of materials. Further limited improvement is occurring
in the energy industry. Single-family housing starts and sales
continue to increase slightly, while multifamily activity remains
weak. Loan demand at commercial banks is down, while total deposits
are up. Fall crop yields are good and livestock receipts are strong.
Retail Sales
Tenth District retailers report that sales are steady to slightly
higher compared with a year ago. Sales of durable and weather-
related goods are weak, but apparel and soft goods sales are strong.
Most retailers are feeling little or no effect from the stock market
decline, although one store that targets upper income customers
reports a noticeable sales decrease. A few retailers are trimming
their inventories, but most are satisfied with current inventory
levels. Half of the respondents report an increase in promotional
activities. Retailers have only modest expectations for the coming
holiday season.
Automobile Sales
Automobile dealers experienced notably weaker sales in October. Most
respondents believe the stock market decline has had a negative
impact on sales, especially for luxury models. Dealers are concerned
that sales will remain flat or decrease slightly during the rest of
1987.
Purchasing Agents
Purchasing agents report relatively stable input prices, with some
small increases for steel and other metals. Prices are expected to
be stable to slightly higher over the rest of the year. Some firms
are trimming their inventories modestly, but most purchasing agents
feel their inventory levels are satisfactory. Respondents report no
problems with the availability of materials.
Energy
Signs of stability in the district's energy industry continue to
emerge. By the end of the third quarter, about a tenth of the 34,000
mining jobs lost in the district in 1986 had been recovered. And,
though the average weekly number of operating drilling rigs fell
slightly from 350 in September to 346 in October, the district rig
count stood 55 percent above the October 1986 level. However, the
rig count in the district remains less than one-fourth its 1982
peak.
Housing Activity and Finance
District homebuilders report that single-family housing starts are
above both last year's and last month's levels. Multifamily
construction continues to weaken, however, and most respondents
expect no improvement in the near future. Most homebuilders report
higher new home sales and reduced inventories with new home prices
rising at about the general inflation rate. No problems are reported
regarding material availability or delivery, and none are expected
in the near future.
District savings institutions generally report deposit inflows above year-ago levels. Conditions vary greatly by state, however. Some institutions experienced large deposit inflows after the stock market decline in October, while others were unaffected. Most respondents report weak mortgage demand, primarily reflecting sluggish local economies. Mortgage rates have fallen recently and are expected to be relatively stable for the rest of the year. Some respondents anticipate higher mortgage rates in 1988.
Banking
Respondents at district banks report seasonally lower total loan
demand for the month, primarily due to a decline in agricultural
loan demand. The demand for commercial and industrial, consumer, and
real estate loans remains flat, Most respondents have lowered their
prime rates, with less than half expecting a further decline.
Consumer loan rates are largely unchanged and are not expected to
change soon. Total deposits rose due to increases in large CD's and
small time deposits and slight increases in demand deposits,
conventional NOW accounts, and MMDA's. Super NOW accounts, IRA and
Keogh accounts, and passbook savings accounts are flat.
The decline in the stock market apparently had little effect on most respondent banks, as only a small share of their loans is secured by stocks. Some respondents believe the decline stimulated deposit growth. Several respondents think banks should reexamine their own portfolios and trust portfolios and maintain or adopt conservative portfolio management practices. Others think bank behavior will not be affected because banks were not hurt by the decline. One respondent commented that the decline should not be used as a reason for inhibiting amendment of the Glass-Steagall securities restrictions on banks.
Agriculture
The fall crop harvest is virtually complete in the southern parts of
the district and is approaching completion elsewhere, although there
have been some delays in the milo harvest in some areas because of a
late freeze. The cotton harvest is underway in Oklahoma and
expectations are for an excellent yield. Corn, milo, and soybean
yields are normal to above normal throughout the district. Winter
wheat plantings are complete and most states report good to
excellent winter wheat pasture conditions.
Lenders are generally optimistic about the rate of paydown on production loans this year and expect paydowns to be somewhat above last year, due partly to the good fall yields and strong livestock receipts. Winter credit reviews are underway and bankers report that both credit applications and credit refusal rates likely will be about the same as last year.