Beige Book Report: Kansas City
May 8, 1996
Overview
The district economy continued to grow at a moderate pace
during the past month. Retail sales strengthened, manufacturing and
homebuilding activity remained brisk, and activity in the energy
industry increased slightly. In agriculture, farm income prospects
weakened due to dry weather and weak profits in the cattle industry.
District labor markets remained tight, with some manufacturers
reporting rising wages for skilled labor. Prices of manufacturing
materials and retail products generally held steady.
Retail Sales
Most retailers report that sales increased moderately
last month and remained above last year's levels Apparel sales were
strong while furniture and appliance sales were weak. Reports were
evenly divided on sales prospects for the months ahead, with some
retailers expecting sales to hold steady and others expecting sales
to strengthen modestly. Most retailers indicate inventories are in
line with expected sales, although some plan to trim inventories.
Automobile dealers also report sales increased last month and
remained above the year-ago level. Dealers note that high consumer
debt has eroded the quality of automobile loan applications.
Nevertheless, sales are expected to remain strong, and most dealers
are expanding automobile inventories in anticipation of continued
sales strength.
Manufacturing
District manufacturers report that plants are
operating at moderate to high levels of capacity use. Few
manufacturers report production bottlenecks due to capacity
constraints. Manufacturing materials remained readily available, and
lead times required to obtain materials continued to decline. Nearly
all of the manufacturers were trimming inventories, with some
indicating the reduction was a normal seasonal occurrence.
Housing
Most builders report starts of both single-family and
multifamily homes held steady last month and remained well above
last year's pace. Builders generally expect steady construction
activity through the summer. Sales of new homes also held steady
last month and stayed much stronger than last year's level. Builders
report the inventory of unsold homes remained lean with home prices
somewhat higher than the year-ago level. Building materials are
readily available, although materials prices have increased slightly
during the past year. Builders expect little change in materials
availability or prices in coming months. Mortgage lenders report
mortgage demand remained strong last month and should increase
seasonally this summer.
Banking
Banks generally report total deposits grew faster than
loans last month, slightly lowering loan-deposit ratios. Most banks
report gains in demand deposits, NOW accounts, MMDAs, small time and
savings deposits, and IRA and Keogh accounts. Large CD deposits were
steady. Banks also report gains in commercial and industrial loans,
home mortgages, home equity loans, and commercial real estate loans.
Consumer loans and construction loans held steady, and agricultural
loans declined slightly. Security investments increased.
Most banks held their prime rate steady last month, and few expect to change their prime rate in the near future. A few banks raised their consumer lending rates slightly, but most expect no change in the near term. Some banks also tightened their lending standards slightly.
Energy
Despite strong energy prices, activity in the district
energy industry picked up only slightly last month. Prices of
natural gas and crude oil stayed well above year-ago levels, even
though natural gas prices declined recently. The average number of
drilling rigs operating in the district during the first three weeks
of April rose slightly from the month before and matched last year's
level.
Agriculture
The driest winter and spring in decades has hurt yield
prospects for the district's winter wheat crop. Among district
states, the drought is most severe in Oklahoma and Kansas, where
about 60 percent of the crop is rated in poor or very poor
condition. In Kansas, usually the nation's leading wheat producing
state, current estimates suggest the harvest may be half as large as
normal. The dry spring weather has been ideal for preparing fields
for the district's spring-planted crops, but concerns are growing
that a continued dry spell could also trim corn and soybean yields.
Large supplies of beef and competing meats continue to hold down cattle prices, while soaring grain prices boost feed costs. As a result, many district cattle feedlots and ranches are operating at a loss. With financial losses accumulating and forage supplies limited by the continued dry weather, some district ranchers have begun to reduce the size of their herds.
District bankers generally expect the quality of their agricultural loan portfolios to weaken somewhat in 1996. High grain prices will help offset crop losses caused by the drought, shoring up incomes for grain producers. But bankers expect profits to be scarce in the district cattle industry in 1996. Overall, district bankers expect strong balance sheets to enable most farmers and ranchers to withstand the rough year.
Wages and Prices
Although labor markets remained tight in much of
the district, employers report few wage increases. Some retailers
report a shortage of available workers, but wages have held steady
since a normal annual increase at the beginning of the year.
Manufacturers report shortages and rising wages for some kinds of
skilled labor, especially welders and machinists. Prices of
manufacturing inputs were generally flat during the past month,
although several manufacturers report a decline in steel prices.
Prices at the retail level held steady last month but remained
somewhat higher than last year's level.