U.S. Federal Reserve Beige Book: Kansas City District (Text)

The following is the text of the Federal Reserve Board’s Tenth District-- Kansas City.


The Tenth District economy expanded modestly in September after growing at a slightly faster pace during the previous survey period. Consumer spending slowed somewhat as a decrease in automobile, restaurant and tourism sales was offset in part by an increase in retail activity. Manufacturing activity grew modestly, and expectations for future activity improved substantially. Residential home sales and prices continued to rise, but contacts anticipated a marginal decline in home sales in the months ahead. Commercial real estate conditions continued to improve, and additional gains were anticipated. Bankers reported stronger overall loan demand, improved loan quality, and stable deposit levels. District crop yields were expected to be about average, but falling crop prices led to lower farm income projections. Energy activity in the District remained solid as natural gas drilling rigs increased slightly and the number of oil rigs edged down in September. Wage pressures eased somewhat since the last survey, and prices held steady for most finished goods, while prices continued to rise moderately for raw materials.

Consumer Spending

Consumer spending slowed somewhat in September as a decline in automobile, restaurant and tourism sales was offset in part by an increase in retail activity. Retail sales picked up since the last survey, with appliance and lower-priced retail purchases particularly strong. District retailers continued to expect higher sales moving into the holiday shopping season. Automobile sales declined in September, but were in line with expectations and remained above year-ago levels. Small SUVs, cars and trucks sold well, while large SUV sales were weak. Automobile dealers expected stable sales in the coming months. Despite a slight decline in restaurant sales in September, restaurant sales remained significantly higher than year-ago levels, and respondents were more optimistic about the next few months compared to the last survey. Hotel occupancy rates fell and tourism counts declined due in part to seasonal factors. A couple of Colorado contacts also noted a decrease in restaurant sales and tourism activity due to severe effects from the recent flooding. Both occupancy rates and tourism were expected to continue to decline over the next three months.

Manufacturing and Other Business Activity

Manufacturing activity rose modestly in September, while sales at high-tech service firms experienced strong growth and transportation activity edged up. Durable manufacturing production, shipments and new orders increased moderately since the last survey, while non-durable goods manufacturing activity decreased marginally in September. Activity in the manufacturing sector remained well above year-ago levels, and manufacturers’ expectations for future activity improved substantially. Contacts expected strong growth for production, new orders and shipments over the next six months. Capital spending in the manufacturing sector was higher than a year ago and was expected to increase further in the months ahead. Sales at high-tech firms picked up in September after falling slightly during the previous survey period. High-tech services contacts also expected sales and capital spending to increase solidly in the months ahead. Transportation firms reported a modest rise in activity but did not expect additional gains in the coming months.

Real Estate and Construction

Residential and commercial real estate activity remained strong in September. District residential real estate sales increased moderately and remained much higher than a year ago. Low to mid-priced homes continued to sell well, while higher priced home sales remained sluggish. The pace of home sales was projected to tick down over the next few months. Inventory levels held steady at low levels and were constraining sales in some areas. Residential home prices continued to rise across the District, and additional price gains were expected over the next few months as supported by lower anticipated inventories. Builders reported a modest gain in home starts, and construction supply firms expected stronger sales in the coming months. Residential mortgage lenders noted that higher interest rates had led to fewer refinances. Furthermore, they reported that increased regulation had added costs and tightened lending conditions. Commercial real estate construction rose, and commercial vacancy rates declined further. Commercial real estate sales were expected to pick up, and rents were expected to rise over the next three months.


In the recent survey period, bankers reported stronger overall loan demand, improved loan quality, and stable deposit levels. Respondents reported increased demand for commercial and industrial loans and commercial real estate loans, steady demand for consumer installment loans, and decreased demand for residential real estate loans. Many bankers reported improved loan quality compared to a year ago, and nearly all bankers expected the outlook for loan quality to either improve or remain the same over the next six months. Credit standards remained unchanged in all major loan categories, and respondents reported stable deposits.


In the agriculture sector, crop production expectations were little changed from the previous survey period, but falling prices lowered farm income expectations. With most of the corn and soybean crops still in relatively good condition, overall District yields were expected to be about average. As harvest began, however, a greater probability of near-record corn and soybean production nationally led to a drop in prices, cutting farm income expectations. Meanwhile, heavy rainfall in Colorado and flooding along the South Platte River affected some agricultural lowlands. Scattered storms slowed harvest activity and winter wheat planting, but helped soil moisture conditions. Lower feed prices narrowed losses for cattle feedlot operators and improved profitability for hog producers. Weaker farm income prospects were expected to curtail farm household and capital spending, but demand for quality farmland remained strong.


District energy activity remained solid in September, and expectations for the coming months improved slightly. Natural gas drilling rigs for the District increased modestly in September, particularly in Colorado and Oklahoma, as gas prices remained stable. District oil drilling rigs edged down over the past month, with most of the decrease occurring in Oklahoma. Respondents expected drilling to remain stable through the end of the year as capital spending increases shift to midstream business such as pipelines. Higher oil prices continue to make oil drilling more attractive than natural gas exploration.

Looking forward, however, respondents expected oil prices to drop and natural gas prices to rise in the coming months. Wyoming’s coal production continued a moderate expansion from the summer months, but remained below year-ago levels.

Wages and Prices

Wage pressures eased slightly in September, while prices rose moderately for raw materials and held steady for most finished goods. Labor shortages declined over the past month in most sectors, and most contacts reported little wage pressure outside specific skilled positions including technicians, software developers, truck drivers, and engineers. Retailers reported a small decline in prices and expected only modest price gains in the months ahead. Restaurant contacts continued to report rising food costs, but held menu prices flat. Average hotel room rates declined as occupancy rates also fell. After an acceleration in the pace of raw materials price increases in August, manufacturers reported a slight moderation in the pace of price increases in September. Manufacturers raised finished goods prices modestly, and most contacts expected additional price increases in the months ahead. Transportation firms held prices steady despite higher input costs. Builders reported little input cost pressures except for items experiencing a shortage. One example noted was a shortage of concrete and equipment in flooded Colorado areas. Commercial real estate prices and rents were flat over the past month but remained higher than year-ago levels. Residential home prices continued to rise, and additional gains were expected in the months ahead.

SOURCE: Federal Reserve Board

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