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Federal Reserve Districts

Tenth District - Kansas City

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The district economy continued to grow moderately the past month, while showing a few signs of easing. Manufacturing activity remained fairly strong. Retail sales edged down, construction activity eased somewhat, and energy activity declined slightly. In the farm economy, record soybean production and average corn production are expected for the current harvest, and ranchers face favorable feeder cattle prices. Labor markets remained tight in much of the district, and reports of rising wages were more common than in previous months. Prices generally held steady at the retail level while increasing slightly for some construction materials.

Retail Sales
Retailers report sales edged down last month and were slightly higher than a year ago. Retailers remain cautiously optimistic that sales will increase over the rest of the year. Most retailers were satisfied with current stocks but expect to expand inventories slightly in the coming months to meet increased demand during the holiday season. Automobile dealers report sales were down slightly last month and lower than a year ago. Sales of light trucks and utility vehicles remained strong, while sales of passenger cars were soft. Dealers have been expanding inventories slightly as they expect sales of new models to increase somewhat the rest of the year.

Manufacturers operated at moderately high levels of capacity last month. Manufacturing materials were generally available, although problems with rail transportation caused lead times to edge up. Manufacturers have been expanding their inventories slightly but plan to trim inventories somewhat in coming months.

Builders report housing starts declined slightly last month and were generally unchanged from a year ago. Builders anticipate a normal seasonal slowdown in construction activity toward the end of the year. Sales of new homes were flat last month and were down slightly from a year ago. Most building materials were readily available and delivery times were normal. Mortgage lenders report some slowing in demand last month but expect little change the rest of the year.

Bankers report that loans and deposits both edged up last month, leaving loan-deposit ratios unchanged. Commercial and industrial loans, commercial real estate loans, and residential construction loans all increased, while other loan categories were little changed. Demand deposits and MMDAs rose, outweighing a decrease in large CDs.

All respondent banks left their prime lending rates unchanged last month and expect to hold rates steady in the near term. Most banks did not change their consumer lending rates and anticipate no future changes. Lending standards were unchanged.

District energy activity declined slightly last month but remained somewhat stronger than a year ago. Crude oil prices fell while natural gas prices increased, but both oil and gas prices remained well below the peaks reached at the end of last year. The district rig count fell 2 percent in September to a level 17 percent higher than a year ago.

The district corn and soybean harvests are well underway and average yields have been reported. Record plantings should lead to record soybean production in the district, while corn production should be average. Despite good corn and soybean crops, prices may remain at profitable levels due to strong export demand and low stock levels.

Winter wheat planting in the district is almost completed and recent rains have led to favorable growing conditions. Likewise, pasture conditions are expected to be excellent this winter allowing some producers to hold cattle until spring. Nevertheless, the majority of ranchers plan to sell their calves this fall or early next year. With feeder cattle prices well above year-ago levels, ranchers should recoup some of the losses from the last two years. However, large supplies continue to dampen fed cattle prices. With higher corn prices and the increased cost of feeder cattle, many district feedlots will be unable to make a profit this fall. Nevertheless, projected increases in beef exports could help strengthen fed cattle prices through the remainder of the year.

Wages and Prices
Labor markets remained tight last month in much of the district, with some increased evidence of wage pressures. Retailers report short supplies of part-time and clerical workers, and manufacturers say skilled workers such as welders were hard to find. Somewhat more companies than in past months say they raised wages to attract or retain workers. Prices held steady at the retail level and rose slightly for some construction materials. Retailers expect no major price changes in coming months.

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Last update: October 29, 1997