The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed October 21, 2009

Federal Reserve Districts

Tenth District--Kansas City

Skip to content

New York
St. Louis
Kansas City
San Francisco

Full report

The Tenth District economy expanded slightly in September and early October. Retail spending increased somewhat, but auto sales dropped back sharply and tourism activity slowed. Manufacturing activity showed gains, and further improvements were expected in the months ahead. The residential real estate sector exhibited signs of stabilization, while commercial real estate conditions worsened. Bankers reported slight declines in loan demand and increases in deposits; they expected loan quality to deteriorate in the coming months. Activity in the energy sector expanded slightly since the previous survey but was still down considerably from year-ago levels. The anticipation of an above average harvest trimmed agricultural prices and farm income expectations. Despite rising raw materials prices, consumer prices drifted down. District employment conditions remained soft with almost no contacts reporting any wage pressure.

Consumer Spending
Consumer spending has been mixed since the last survey period. Some retail contacts indicated increased sales in September and early October. Retailers reported strong sales of cold weather apparel and lower-priced goods but sluggish sales of jewelry and summer merchandise. Retail sales were expected to increase further over the next three months, but many contacts expected consumer demand to be weak relative to pre-recession levels for some time. Restaurant sales and average check size stabilized over the survey period, but most restaurant contacts continued to report fewer sales compared with one year ago. Auto dealers reported a sharp drop-off in sales after the end of the cash-for-clunkers program. Most auto contacts reported that inventory levels were too low, especially for used cars. Tourism spending declined, and almost all hotel contacts indicated that occupancy rates remained below year-ago levels. Both tourism and hotel contacts expected worsening conditions over the next three months.

Manufacturing and Other Business Activity
Activity in the District's manufacturing and high-tech sectors rose in September, while transportation activity was flat. Manufacturers reported increases in production, shipments, and new orders and expected further gains over the next six months. Increased activity was noted for both durable and nondurable goods production, but activity remained well below year-ago levels. Aircraft manufacturing was an exception, with contacts reporting continued declines in activity. The number of manufacturers expecting a gain in employment and average employee workweek over the next six months increased since the previous survey. However, manufacturers remained cautious about capital spending. Technology-related firms indicated an uptick in sales and expected additional gains in the near future. Since the last survey, contacts noted that transportation activity had been flat but expected improvements over the next three months.

Real Estate and Construction
The residential real estate market showed signs of stabilizing, while commercial real estate conditions deteriorated. Sales of lower-priced homes continued to increase over the past month, while demand for luxury properties remained sluggish. Most real estate contacts reported that home sales were higher than year-ago levels amid still falling home prices. However, respondents expected some decrease in activity over the next few months due to seasonal factors and the expiration of the first time homebuyer tax credit. Builders reported some stabilization in housing starts, but levels remained well below one year ago and were not expected to improve over the next three months. The deterioration in commercial real estate activity continued in September and early October and is expected to worsen in the coming months. Vacancy rates rose slightly, and absorption rates fell sharply leading to lower rents. Commercial construction activity declined and sales slowed resulting in lower prices. Developers continued to report difficulty obtaining credit.

Bankers reported moderately weaker loan demand, further increases in deposits, and a continued negative outlook for loan quality. Overall loan demand continued to decline, but at a somewhat slower rate than in the previous survey. Demand fell further for commercial real estate loans. However, demand for commercial and industrial loans held steady following a long string of declines since early last year. Demand for consumer installment loans was also unchanged, and demand for residential real estate loans resumed increasing after a dip in the last survey. Some banks continued to tighten credit standards on commercial real estate loans, but credit standards for other loan categories were generally unchanged. Loan quality remained substantially lower than a year ago, and about half of respondents expected loan quality to decline further over the next six months. Deposits rose further, with most categories sharing in the increase. Among factors cited for the increase were a continued flight to quality, a desire by investors to park their cash on the sidelines, and an easing in rate competition from troubled institutions.

Energy activity edged up in September and early October but remained considerably below year-ago levels. Overall drilling activity improved slightly over the previous month, mainly among crude oil producers, and activity was expected to remain stable. However, rig counts were still at low levels historically, particularly for natural gas in Colorado and Oklahoma. Natural gas prices remained subdued due to record supplies in storage. However, many producers expected price increases in the coming cold winter months.

Since the last survey period, the prospects of a bumper crop limited agricultural commodity prices and pushed down farm income expectations. The majority of the corn and soybean crops were reported in good or better condition. Farmers anticipated above average yields, although delayed spring planting has set back the harvest. Winter wheat planting was progressing well. Weak livestock demand limited profits for hog and cattle operators. With weaker crop and livestock incomes, District bankers reported stronger demand for operating loans and lower farm loan repayment rates. However, farmland values held near year-ago levels as contacts noted stronger non-farmer investor demand and fewer farms being offered for sale.

Wages and Prices
Consumer prices generally decreased, and labor market conditions remained weak. Manufacturers reported rising prices for raw materials and expected additional increases over the next few months. However, these costs were still below year-ago levels and were not expected to be passed along to customers in the form of higher prices for finished goods. Retailers continued to report price decreases and expected additional declines in the coming months. Restaurant contacts noted a decline in food prices. The majority of firms did not expect to increase employment over the next few months, and almost no contacts reported any wage pressure.

Return to topReturn to top

Previous Minneapolis Dallas Next

Home | Monetary Policy | 2009 calendar
Accessibility | Contact Us
Last update: October 21, 2009