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Federal Reserve Districts

Tenth District - Kansas City

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The district economy continued to grow moderately last month. Manufacturing activity remained strong, retail sales edged up, and energy activity improved slightly. Construction activity generally held steady. In the farm economy, a recent cold snap caused some damage to the winter wheat crop, but the district cattle industry continued to improve. Labor markets remained tight in much of the district, yet reports of wage increases in the past month were scattered. Prices generally held stable at the retail level while increasing for some materials used in manufacturing and construction.

Retail Sales
Retailers report sales edged up last month and were slightly higher than a year ago. Total sales are expected to increase moderately in the coming months. Retailers have been expanding their inventories but report they are generally satisfied with current stocks and plan no major changes in the next several months. Automobile dealers report sales were up slightly last month, and sales are expected to increase in coming months. Sales of light trucks and sport utility vehicles remained particularly strong. Most dealers have been holding inventories steady but expect to expand stocks somewhat in the next several months to meet increased sales.

Manufacturers continued to operate at moderately high levels of capacity last month. Manufacturing materials were generally available, with lead times unchanged. Most manufacturers have been holding inventories steady but plan to trim inventories somewhat in coming months because stocks exceed desired levels.

Builders report housing starts generally held steady last month but were down from a year ago. Builders expect construction activity to improve in the coming months due primarily to seasonal factors. Sales of new homes edged up last month and were down slightly from a year ago. Most building materials were readily available, and delivery times were normal. Mortgage lenders say demand increased last month.

Bankers report that during the past month loans changed little while deposits increased, reducing loan-deposit ratios somewhat. Commercial and industrial loans, residential construction loans, and commercial real estate loans edged up, while other loan categories were flat. Increases in demand deposits and money market deposit accounts contributed to the rise in deposits.

All respondent banks increased their prime lending rates last month and about half expect to raise rates further in the near term. Most banks also increased their consumer lending rates last month but plan no further changes in the near future. Lending standards were unchanged.

District energy activity improved slightly last month and remained stronger than a year ago. Oil and gas prices fell for the third month in a row, reversing earlier increases. Despite the price declines, the district rig count edged up 2 percent to a level 25 percent higher than a year ago.

The district's winter wheat crop was damaged recently by sub-freezing temperatures in key growing areas. Overall, the crop's condition dropped from excellent to average. A general pattern of cool wet weather has delayed spring fieldwork in much of the district. The delay is not critical yet, however, and without further delays most spring crops should be planted well within normal deadlines.

The district's mix of major crops may change slightly this spring due to the new farm bill. Under the new government farm program, farmers are free to plant what they want. Bankers indicate that the recent surge in soybean prices is encouraging many district farmers to switch some acres from corn to soybeans. In drier areas of the district, farmers aim to plant more milo and sunflowers than they have in the past.

Conditions in the district cattle industry continue to improve. Most producers indicate that the herd reduction phase of the current cattle cycle may be over. In fact, ranchers plan to retain more breeding stock this year to build their herds in preparation for stronger livestock profits in the years ahead. The increased demand for breeding stock has nearly doubled the price of a cow and her newborn calf from a year ago.

Wages and Prices
Labor markets remained tight last month in much of the district, yet there were only scattered reports of wage hikes. Some manufacturers report skilled workers were in short supply, and some firms say entry-level workers were hard to find. Computer specialists were also in short supply in some markets. Only a few companies, however, indicate they raised wages recently to attract or retain workers. Prices held steady at the retail level but increased for some manufacturing and construction materials. Retailers expect no major price changes in coming months.

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Last update: May 7, 1997