WASHINGTON (MNI) – The following is the text of the Federal
Reserve’s Beige Book survey Tenth District summary, published
Wednesday:
TENTH DISTRICT – KANSAS CITY
The Tenth District economy grew modestly since the last survey with
expectations of further improvement in the coming months. Consumer sales
edged up at retail stores and auto dealerships, and District contacts
were hopeful that rising consumer confidence would boost future sales.
Residential real estate activity improved slightly, but real estate
agents expected expiring tax credits to weigh on the housing rebound.
While the commercial real estate market remained stressed, District
contacts noted a slight improvement in leasing activity. Manufacturing
activity expanded modestly, transportation activity strengthened, and
factory managers expected further production gains. Bankers reported
improved expectations for loan quality, and credit standards were
generally unchanged. Energy activity expanded further as oil and natural
gas production increased. Agricultural conditions improved with higher
livestock profits and farmland values. Despite higher input prices,
retail prices and wage pressures remained low, and few firms planned to
pass through additional costs to consumers.
Consumer Spending.
Consumer spending continued to improve, and many contacts expected
further gains in retail sales. Spurred by lower prices and promotional
advertising, retailers reported a rise in sales led by summer apparel
items and lower-priced appliances. Auto dealers reported strong demand
for used vehicles, which helped boost auto sales and reduce vehicle
inventories. Some contacts felt rising consumer confidence would
encourage future auto sales. Restaurant sales declined with fewer diners
and a flat average check amount. With the onset of seasonal travel,
tourism activity and hotel occupancy rose. Further improvements in the
tourism and hotel industries were expected as summer travel picks up.
Real Estate and Construction.
Residential real estate activity improved slightly in April and
May, while the decline in commercial real estate activity slowed. Lower
priced singlefamily homes sold well in April as buyers rushed to take
advantage of tax credits. In contrast, sales of higher-priced homes
slowed, contributing to a rise in home inventories. Real estate agents
expected home sales to fall in the coming months due to expiring tax
credits and weak job growth in some areas of the District. After rising
in the last survey period, residential construction activity held
steady. Mortgage lending activity rose with new home purchases, and loan
refinancing volumes increased with lower mortgage rates. Commercial real
estate activity remained weak and below year-ago levels. However, lower
rents appeared to slow the rise in vacancy rates and raise absorption
rates since the last survey period. District contacts expected leasing
activity to rise faster than sales activity for commercial property in
the coming months. Commercial construction activity continued to decline
due in part to difficulty accessing credit.
Manufacturing and Other Business Activity.
Manufacturing activity grew at a modest pace in April and May while
transportation firms reported sustained growth. After several months of
solid gains, the pace of production moderated at both durable and
non-durable goods producing plants. The volume of new orders, order
backlogs, and shipments edged down from March levels while finished
goods inventories rose slightly. Employment levels were stable and fewer
firms planned to increase payrolls. Still, manufacturing activity
strengthened compared to a year ago, and more plant managers expected
factory production to ramp up in the next six months. Some District
manufacturers noted an increase in supplier delivery times, and sales
activity in the transportation sector rose further. Most transportation
firms anticipated the rebound would continue through the summer. Some
companies were having difficulty finding qualified drivers, and a few
contacts raised concerns about future capacity constraints. The hightech
industry reported a slight uptick in sales activity, partly due to an
increase in government contracts.
Banking.
Bankers reported steady loan demand, higher deposits, and an
improved outlook for loan quality. Overall loan demand was essentially
unchanged, following a series of declines over the last year. Demand for
commercial and industrial loans was flat, while demand for commercial
real estate loans and residential real estate loans increased
moderately. Consumer installment loans continued to trend downward.
Credit standards were generally unchanged. Slightly more bankers
reported an improvement in loan quality from one year ago than reported
a deterioration. Also, for the first time since late 2007, respondents
expected stable rather than declining loan quality over the next six
months. Deposits increased moderately after showing no change in the
previous three surveys.
Energy.
Energy production expanded since the last survey period, and
additional gains were expected in the coming months. The number of
active drilling rigs in the District rose further, primarily due to
expansion in Oklahoma and New Mexico. Some firms reported difficulty
finding qualified workers, especially engineers. Crude oil prices were
expected to rise due to an uptick in demand from the industrial sector
and higher gasoline use for summer travel. Since the last survey, fewer
contacts expected further declines in natural gas prices. However,
several natural gas producers were concerned that prices would remain
low due to excess supply. With increased production and limited demand,
supplies at natural gas storage facilities grew at a record pace. Though
District coal production slowed in April and May, year-to-date volumes
approached 2009 levels.
Agriculture.
Agricultural conditions improved since the last survey period.
Overall, the winter wheat crop was reported in good condition. However,
prolonged cool, wet weather promoted wheat crop diseases, which could
reduce yields in some areas of Nebraska, Kansas and Oklahoma. Corn
planting was almost complete while soybean planting was slightly behind
schedule. Crop prices were little changed since the last survey period,
but hog and cattle prices rose significantly with further contractions
in supplies. Improved incomes among livestock producers contributed to a
rise in District ranchland values. Cropland values also increased with
strong farmer demand and nonfarm investor interest. Agricultural lenders
reported a slight decline in loan repayment rates, but loan renewals and
extensions held steady.
Wages and Prices.
Wage and retail price pressures remained low in April and May;
however, input prices rose for some District firms. District labor
markets improved slightly and contacts generally reported little wage
pressure and few problems finding qualified workers. After falling in
April and May, retail prices were expected to dip further in the coming
months, and builders expected lumber prices to fall from their recent
spike. However, materials prices, especially steel, rose sharply for
District manufacturers. In addition, transportation companies noted
rising fuel costs, and restaurant owners paid higher food prices.
Despite rising input costs, most District contacts were reluctant to
increase selling prices.
** Market News International Washington Bureau: 202-371-2121 **
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