WASHINGTON (MNI) – The following is the text of the Federal
Reserve’s Beige Book survey Tenth District summary, published
Wednesday:
TENTH DISTRICT – KANSAS CITY
Summary
The Tenth District economy expanded moderately during March, and
District contacts expected economic conditions to improve further in
coming months. Warmer weather conditions led to increased retail traffic
and supported a modest rebound in consumer spending, generating some
optimism among District contacts. Manufacturing and transportation
activity continued their steady rebound, resulting in a few new hires.
District housing activity rose and contacts anticipated further
improvements in coming months. In contrast, commercial construction
activity continued to wane. Energy activity expanded further, but
natural gas production was expected to ease with slower summer demand.
Agricultural conditions remained solid as livestock profits improved and
strong crop profitability boosted planting expectations this spring.
Wage pressures remained muted and retail prices held steady, but some
manufacturers were considering raising selling prices due to higher raw
material costs.
Consumer Spending.
Consumer spending rebounded in March as customer traffic improved
with warmer weather. Retailers reported higher than expected sales and
were optimistic that business activity would continue to recover.
Apparel items sold well, and demand for lower-priced durable goods rose.
After months of declines, auto dealers reported steady sales in March
and were hopeful that increased showroom traffic would spur purchases.
Mid-size cars and SUVs were in greatest demand. Restaurants reported
more diners but less spending per check, resulting in flat sales. Travel
and tourism activity edged up and was expected to strengthen further
approaching vacation season. District hotel owners reported higher
average room rates and increased occupancy.
Manufacturing and Other Business Activity.
Manufacturing and transportation activity expanded solidly since
the last survey period. Manufacturing production improved to near
year-ago levels as slightly slower growth at non-durable goods plants
was offset by stronger durable goods production. A moderate rise in
shipments and exports reduced inventories and the backlog of orders
increased slightly. Producer expectations for future factory activity
improved with sustained growth in new order volumes. Employment levels
held steady during the survey period, but more manufacturers planned to
increase payrolls over the next six months. Capital spending plans,
however, remained largely on hold. After rebounding in the last survey
period, sales activity in the transportation sector rose further, but
firms were concerned about rising fuel costs. Some trucking companies
were hiring qualified drivers. The high-tech industry reported a decline
in demand for commercial consulting services as clients cut costs.
However, an increase in projects to retro-fit existing facilities to
maximize efficiency was noted.
Real Estate and Construction.
Residential real estate activity strengthened in March, while
commercial real estate activity weakened further. Residential builders
reported an upswing in building starts after the harsh winter. Home
sales and buyer traffic moved higher, though sales prices fell slightly
with a rise in existing home inventories. The home buyers tax credit
continued to support the starter home market, but District contacts
expected slower sales after the incentive program expires. Sales of
higher priced homes remained sluggish. Mortgage lenders reported an
increase in home purchase loans while loan refinancing volumes declined.
Construction supply firms anticipated stronger sales for new
construction materials as well as higher consumer demand for home
improvement supplies. In contrast, commercial real estate activity
remained well below year-ago levels. Contacts also noted that few new
construction projects had qualified for financing due to continued tight
credit conditions. Vacancy rates edged higher, rents fell further, and
sales were expected to remain sluggish. Leasing concessions were common
as landlords tried to retain current tenants and attract new ones. Some
distressed commercial properties were being put on the market and more
were expected to follow.
Banking.
Bankers reported lower loan demand, stable deposits, and an
unchanged outlook for loan quality. Overall loan demand declined at a
slightly faster pace than in the previous survey. Demand for commercial
and industrial loans and commercial real estate loans fell moderately.
Demand also declined somewhat for residential real estate loans and
consumer installment loans. A few banks tightened credit standards on
commercial real estate loans, but credit standards for other loan
categories were generally unchanged. Somewhat fewer banks than in the
previous survey reported lower quality than a year ago. As in the
previous survey, however, about a third of respondents expected loan
quality to decline over the next six months. Deposits continued to show
little change overall. Several respondents said that some of their
depositors were shifting funds to alternative investments such as stocks
and bonds in search of higher yields.
Energy.
Energy activity expanded during the survey period, and additional
modest gains were expected in the coming months. After rising in March,
the number of active rigs in the District approached year-ago levels.
Several firms planned to hire additional staff, primarily engineers and
skilled labor. Crude oil prices were expected to rise due to a seasonal
uptick in demand and improvement in the world economy. Natural gas
prices, however, were expected to decline with excess supply and lower
summer demand. Some contacts noted that the expansion in drilling
activity could be constrained by the availability of labor, equipment,
supplies, and financing. A Wyoming producer also noted difficulty
obtaining drilling permits and a decline in land lease sales which could
also hinder future development. District coal production increased in
March, but remained below year-ago levels. Ethanol profit margins have
fallen below capital costs and biodiesel production remains stalled
after the loss of a federal tax credit eliminated profits.
Agriculture.
Agricultural conditions improved since the last survey period.
Livestock prices strengthened in March boosting profitability,
especially for cattle producers, and prices were expected to rise
further with smaller supplies. Crop prices edged down in March with the
prospects of increased plantings and bumper crops. The winter wheat crop
was reported in generally good condition. District plantings of corn and
soybeans were expected to increase this year, most notably in Kansas
where winter wheat plantings declined. Soil moisture levels were more
than adequate and contacts were concerned that excessively wet fields
could delay spring planting again this year. Lenders reported ample
funds were available to satisfy rising demand for farm operating loans
in preparation for spring planting. Cropland values remained solid with
limited sales activity.
Wages and Prices.
Wages held steady since the last survey period, and some factories
considered raising selling prices in coming months as raw materials
prices rose further. Contacts reported little wage pressure in District
labor markets, and most companies hiring new workers were not offering
higher salaries to attract qualified applicants. Input prices rose in
March and were expected to rise further in coming months. District
manufacturers reported additional increases in prices paid for raw
materials. Builders and construction supply companies stated that prices
for construction materials increased, especially for roofing shingles
and asphalt. Transportation companies paid higher prices for fuel, and
restaurant owners noted higher food costs. Some manufacturers planned to
raise selling prices in the months ahead. Most retailers, however, did
not anticipate raising prices, and restaurants expected menu prices to
remain flat.
** Market News International Washington Bureau: 202-371-2121 **
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