Beige Book Report: Kansas City
December 4, 1991
Overview
The Tenth District economy continues to grow slowly overall, but
business conditions vary from industry to industry. Retail sales and
housing starts are up somewhat, but auto sales are down. Energy
industry activity remains sluggish, and farm incomes are off. Most
retailers expect better Christmas sales this year than last year.
Prices remain generally steady for both manufacturers' inputs and
for consumer goods. While retailers are satisfied with current
inventory levels, manufacturers continue to trim their inventories.
Retail Sales
Sales were generally higher than last year and higher than the
previous month, with apparel sales leading the way. District
retailers report stable prices for last month and expect prices to
remain steady over the near term. Satisfied with their inventory
levels, most retailers plan to keep purchases low. Expectations
about sales in the next three months are mixed. However, most
retailers expect Christmas sales to be better than last year.
Expectations are weaker among sellers of high-end goods than among
other retailers.
Auto sales declined in most district states over the last month, but most dealers expect sales to improve slightly in the next few months. While financing is available for floorplanning, many potential buyers are finding it difficult to obtain loans. Dealers are still striving to trim their already low inventories.
Manufacturing
Most purchasing agents experienced no price changes last month and
expect no significant changes in the month ahead. Materials are
readily available, with few changes in lead times. Nearly all firms
have been trimming inventories because of weak sales and plan to
continue trimming for the remainder of the year. Plants are
generally operating below capacity.
Energy
Energy industry activity in the district remains sluggish. Drilling
has picked up somewhat, however, due mainly to increased drilling of
new horizontal wells in the Rocky Mountain states. The average
number of operating drilling rigs in district states increased from
232 in September to 250 in October. Nonetheless, the October rig
count was 23 percent below a year earlier.
Housing Activity and Finance Housing starts across the district were up slightly from the previous month and significantly higher than a year ago. Builders expect moderate growth in housing starts through early 1992. While new home sales were generally flat last month, sales were up significantly from a year ago. Prices for new homes are slightly higher. Builders report no problems acquiring materials and generally expect none through early 1992.
Most savings and loan respondents report net deposit outflows last month. Deposits are expected to remain flat or to decrease in the period ahead, especially if rates on savings deposits continue to decline. Most mortgage demand is for refinancing. Rates are expected to continue to decline in the coming months.
Banking
District bankers report that loan demand was steady to slightly
higher last month. Demand increased for home mortgages, construction
loans, and agricultural loans, but decreased for commercial and
industrial loans and commercial real estate loans. The loan-to-
deposit ratio for district banks was steady last month but lower
than a year ago.
District bankers reduced their prime lending rates last month, but most expect to leave these rates unchanged in the near future. About half of the respondents also lowered their consumer lending rates in the last month, and several anticipate further cuts of consumer rates in the near future. Respondents report no changes in their other loan terms.
A majority of the respondents experienced deposit inflows last month. The growth in deposits was primarily in demand deposits, NOW accounts, and savings deposits. Large certificates of deposit declined slightly, and MMDAs were unchanged.
Agriculture
Dry weather cut nonirrigated fall crop yields up to 70 percent in
parts of the district and delayed development of much of the
district's winter wheat crop. Yields of the district's corn, milo,
and soybean crops, however, were normal to slightly above normal in
most parts of the district. Recent rainfall improved the condition
of the wheat crop, but the crop's late start has left it vulnerable
to freezing temperatures this winter.
District feedlot operators are feeding about the same number of cattle as a year ago. The backlog of heavy cattle that pushed down cattle prices last summer has gone to slaughter, enabling a partial recovery in cattle prices and cattle feeding profits.
Fall credit reviews for district farm borrowers showed little change in the number of problem loans since last year. Livestock profits were strong during the first half of the year and bolstered meager crop profits on diversified farms. Livestock prices fell in the second half of the year, however, and are expected to remain weak in 1992. Thus, farm bankers expect the number of problem farm loans to increase during the coming year, but the extent of the increase remains uncertain.