Beige Book Report: Kansas City
November 30, 2016
Economic activity in the Tenth District increased slightly compared with the previous survey, with mixed conditions across sectors. Consumer spending activity increased slightly, and District real estate activity also edged higher in October and early November. Professional and high-tech firms reported considerably higher sales, and bankers reported steady loan demand, stable deposit levels, and unchanged loan quality. Energy activity rose modestly, and District manufacturing firms reported slight expansion. Transportation and wholesale trade activity declined moderately from the previous survey period, and agricultural credit conditions remained weak, with falling farmland values and continued low commodity prices. Input prices rose modestly, while selling prices were mixed across sectors. Contacts in many industries reported a slight increase in wages, and workers in certain skilled occupations were in short supply.
Consumer Spending
Consumer spending increased slightly in October and early November, and expectations for future growth were mostly positive. Retail sales continued to grow moderately, but were slightly below year-ago levels. Several retailers noted an increase in sales for lower-priced items and fall/winter products, while luxury products sold poorly. Contacts anticipated sales to rise in the next few months, and inventory levels were expected to remain mostly flat. Auto sales fell markedly in October and early November, and remained well below year-ago levels. However, dealer contacts expected a modest pickup in sales for the months ahead. Auto inventories increased and were expected to rise slightly in coming months. Restaurant sales fell considerably but were mostly consistent with year-ago levels. Contacts expected activity to weaken slightly heading forward. District tourism activity rose modestly and was above year-ago levels. Tourism contacts expected mostly flat activity for the months ahead.
Manufacturing and Other Business Activity
Manufacturing activity expanded slightly in October and early November, while other business activity was varied. Manufacturers reported improved activity in both durable and nondurable goods production, particularly in aircraft, computer equipment, metals, and machinery. Production, shipments, and export orders continued to expand during the survey period. Manufacturers' capital spending plans increased moderately, and they expected activity to improve further heading forward.
Outside of manufacturing, professional and high-tech firms reported a considerable increase in sales, with strong improvements expected in future months. Transportation and wholesale trade contacts noted moderate declines in activity, although many firms expected sales to increase significantly in the coming months. Professional, high-tech, and wholesale trade firms reported favorable capital spending plans, while transportation contacts expected capital spending to ease slightly.
Real Estate and Construction
District real estate activity increased slightly from the previous survey as both residential and commercial construction activity rose. Residential home sales were lower than the previous survey period, with contacts citing seasonal factors and political uncertainty for the slowdown in residential real estate activity. Sales of low- and medium-priced homes continued to outpace sales of higher priced homes, and inventories held steady. Home prices were moderately above the previous survey period and were expected to continue to rise. Residential construction activity continued to expand at a modest pace as housing starts and sales were higher than the previous survey period and same time last year. Respondents in the residential construction sector expected a modest decline in activity over the months ahead. Commercial real estate contacts continued to report modest growth as absorption, construction underway, sales, and prices increased. Expectations for the commercial real estate market were for continued modest growth.
Banking
Most bankers reported steady overall loan demand for the period from October through early November. Respondents indicated a steady demand for commercial and industrial, commercial real estate, residential real estate, agricultural, and consumer installment loans. Most bankers indicated loan quality was unchanged compared to a year ago. In addition, a majority of respondents expected loan quality to remain essentially the same over the next six months. Credit standards remained largely unchanged in all major loan categories. Finally, a majority of respondents reported stable deposit levels.
Energy
District energy activity rose modestly, and expectations were mostly positive. The number of active oil and gas drilling rigs continued to pick up modestly across several District states. Oil and gas prices stayed within a narrow range, and respondents commented that sustained global oil oversupply would keep oil prices from rising significantly in the coming months unless OPEC agreed to cut production. Some firms mentioned that services companies were trying to increase their prices but have been mostly unsuccessful. Natural gas prices eased somewhat as inventories reached a record high in early November. However, cooler weather forecasts were expected to push up demand and prices in the coming weeks.
Agriculture
Low commodity prices continued to weigh on farm income in the Tenth District. Prices for most agricultural commodities were slightly less than a year ago due to strong production expectations for 2016. Amid persistently low farm prices and incomes, farmland values of all types declined moderately, capital spending and household spending fell slightly, and demand for farm loans increased modestly when compared with a year ago. Farm loan repayment rates were expected to decline further in the coming months alongside relatively weak profits for many agricultural producers in the Tenth District. Due to weaker agricultural credit conditions and increased risk in the farm sector, District contacts reported notable increases in collateral requirements and slight increases in interest rates on farm loans.
Wages and Prices
Input prices in most sectors edged up compared to the prior survey period, while selling prices were mixed and wages continued to grow. Retail prices were up slightly, and were expected to grow moderately moving forward. Input prices for restaurants increased modesty after falling in the previous survey, and menu prices edged up. Transportation input prices contracted modestly, while selling prices decreased moderately with further decreases expected in the next few months. Construction prices rose slightly with expectations for prices to hold steady. Manufacturers reported continued modest declines in finished product prices, while raw material costs were up slightly after holding steady in the prior survey. Manufacturers expected both finished goods and raw materials prices to pick up in the coming months. Contacts in most sectors continued to report slight wage growth, and expectations were for moderate increases moving forward. Respondents reported shortages of skilled technicians, commercial drivers, and service workers.