Beige Book Report: Kansas City
May 3, 1989
Overview
The Tenth District economy continues to grow slowly. Retail sales
are increasing moderately, though new car sales are down.
Manufacturers report higher input prices, but no bottlenecks or
labor shortages. The district's energy industry shows few signs of
improvement. Housing starts have been relatively weak so far this
year, although they were stronger in March. Mortgage demand is mixed
at district savings and loan institutions. Loan demand at commercial
banks is steady to higher, while deposit performance is mixed.
Recent rains have improved the outlook for spring crops, but winter
wheat yields are still expected to be below normal. Bankers report
generally strong financial conditions among farmers and ranchers.
Retail Sales
Most general merchandisers report retail sales performance has
improved from a year ago and over the last three months, although a
few report decreasing sales. Retailers are attempting to maintain
margins by passing through wholesale price increases. In the near-
term, retail sales are expected to be stable to slightly higher.
Inventory levels are mostly satisfactory. Automobile sales are
reported to have weakened over the last month. Most dealers are
trimming inventories or maintaining current inventory levels. Most
auto dealers expect 1989 sales to be at or below 1988 levels.
Manufacturing
All respondents indicate that input prices are up relative to a year
ago, with some increases over the past three months. Prices are
expected to stabilize or decrease in the future. Firms report few
difficulties in acquiring materials, and lead times have remained
steady or declined. Inventory levels are generally satisfactory.
Most plants are operating near full capacity, but no bottlenecks or
labor shortages are reported.
Energy
Despite the recent run-up in oil prices, the district's energy
industry shows few signs of improvement. Continued uncertainty about
the future course of world oil markets has held down drilling
activity in the region and nationwide. The average number of active
drilling rigs in the district fell from 219 in February to 211 in
March, a fourth below the average of one year ago. However, during
the first two weeks of April, the district rig count increased to
233.
Housing Activity and Finance
District housing activity through March is down from a year ago.
However, most homebuilders report stronger housing starts in March,
a rebound from February's weakness. Single-family construction
continues to be stronger than multi-family. New home sales and
prices are higher, but the higher prices reflect larger homes being
sold. Home inventories are relatively low. Most respondents expect
steady housing activity in the near term, and slightly improved
activity by year-end.
Most respondents from district savings and loan institutions report a net outflow of deposits over the last month. In most cases, net flows of deposits are comparable to a year ago. Respondents' expectations for deposit flows in the near future are mixed, but several expect further outflows if interest rates keep increasing. Respondents report mixed demand for mortgages, with a pickup expected during the summer. Many respondents expect mortgage rates to peak within the next three months and then to decline for the rest of the year.
Banking
Most district commercial bank respondents report constant or
increased loan demand over the past month. The increases were
concentrated in commercial and industrial loans and in agricultural
loans. About half of the respondents increased both their prime rate
and their consumer loan rates by fifty basis points in recent weeks,
while the other half reported no change.
Only a few banks expect further increases in lending rates in the near future; the remaining banks anticipate no change. Deposit behavior varied both across the district and across types of deposits. Approximately equal numbers of respondents reported increases and decreases in deposits. Decreases were mostly in demand deposits, NOW accounts, and money market deposit accounts. Increases were generally in IRA and Keogh accounts and in small time and savings deposits.
Agriculture
Recent rains throughout much of the Tenth District improved the
district's agricultural outlook, but the rains came too late for
much of the winter wheat crop. Continued dry conditions throughout
the spring and cold temperatures in February severely damaged much
of the crop. Wheat yields are expected to be well below normal in
parts of Oklahoma and much of Kansas. Bankers in those areas report
that some farmers are plowing under the wheat crop and planting
spring crops. In other areas of the district, the recent moisture
has allayed fears of losing the wheat crop, although additional
rains are needed to assure adequate spring growth. District bankers
report most farmers will begin planting spring crops within the next
few weeks. The recent rains have contributed to good growing
conditions and an optimistic outlook for spring crops, although more
moisture will be needed soon. Subsoil moisture remains below normal
in many areas of the district; good snowpack in Colorado will help
replenish depleted water stocks there.
Results of spring credit reviews by district bankers generally reflect strong financial conditions among farmers and ranchers. Most operators had good financial performances both last year and the year before. Given the relatively strong financial conditions of borrowers, most bankers do not feel that their agricultural loan portfolios are at risk, especially if dry conditions affect only the wheat crop and normal weather returns to the rest of the district.