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Beige Book Report: Kansas City
November 27, 2019
Summary of Economic Activity
Tenth District economic activity held steady in October and early November, although conditions were mixed across sectors. Consumer spending edged down since the previous survey period as higher retail sales were offset by lower sales in the auto, restaurant, and tourism sectors. Manufacturers noted weaker activity, led by continued declines in durable goods production, but manufacturers expected activity to stabilize in the months ahead. Contacts in the transportation sector noted slightly lower sales, while sales in the wholesale trade and professional and high-tech services sectors rose. District real estate conditions rose slightly, although residential construction contacts expected lower activity moving into the winter months. Energy activity continued to fall in the District, and the outlook for drilling and business activity softened. The agriculture sector remained weak, and credit conditions worsened as farm income and loan repayment rates fell. District employment and employee hours held steady since the previous survey period, but a majority of contacts reported ongoing shortages of qualified labor. Wages continued to expand at a modest pace, and contacts expected moderate growth in the months ahead. Services sector contacts noted higher input and selling prices since the previous survey period, while manufacturers noted slightly lower prices for finished products and raw materials.
Employment and Wages
District employment and employee hours held steady since the last survey period, and both remained above year-ago levels. Job gains in the professional and technical services, real estate, health services and wholesale trade sectors were offset by losses in the manufacturing, auto sales, transportation, and tourism and hotel sectors. Employment in all industries, with the exception of the auto sales sector, was at or above levels from the same period a year ago, and contacts expected employment to rise in the next few months.
A majority of contacts continued to report labor shortages across all skill levels, and a lack of qualified applicants was cited as the number one reason for not filling open positions over the last three months. Specifically, respondents noted shortages for truck drivers, hourly retail and food-services positions, auto-technicians, IT personnel, nurses, engineers and skilled construction trades. Wages continued to grow modestly since the previous survey period, and strong gains were expected in the months ahead.
Input and selling prices rose modestly in October and early November in the services sector, while manufacturers noted slightly lower prices. Both input and selling prices were expected to increase moving forward for all reporting sectors. Contacts in the retail trade sector noted moderate input price gains and modestly higher selling prices. Input and selling prices in the restaurant sector rose modestly, and were strongly above year-ago levels. The transportation sector saw modest gains in both input and selling prices. Construction supply respondents noted steady selling prices since the previous survey period, although selling prices were below year-ago levels. Manufacturers noted slightly lower prices for finished products and raw materials. Construction supply and manufacturing respondents expected small price increases moving forward.
Consumer spending edged down in October and early November relative to the previous survey period, however contacts expected sales to expand during the upcoming holiday season. Retail sales grew modestly compared to the previous survey period, and remained above year-ago levels. After steady increases through the late summer months, auto sales fell modestly compared to both the previous survey period and year-ago levels. Contacts noted that SUVs and trucks sold well, while sedans sold poorly. Both auto and retail trade contacts were optimistic about future sales and expected increases in the coming months. Restaurant sales fell slightly compared to the previous survey, but were sharply higher than a year ago. Tourism activity was weaker than the last survey, but slightly above levels from a year ago. Above average snowfall in the mountain areas has led to increased optimism about winter tourism activity this season.
Manufacturing and Other Business Activity
Manufacturing activity fell slightly in October and early November due to persistent declines in durable goods factory activity, however manufacturers expected activity to slightly increase in the months ahead. Factory production, order backlogs, and new orders each declined com-pared to the previous survey period, and contacts expected production, shipments, and the volume of new orders to increase in the months ahead. Capital spending was modestly above year-ago levels, and contacts anticipated slight growth in spending in the months ahead.
Outside of manufacturing, firms in the transportation sector experienced slightly lower sales, while sales increased strongly in the wholesale trade sector and modestly in the professional and high-tech services sector. All three sectors expected sales to increase in the months ahead. Transportation sector contacts anticipated slight decreases in capital spending in the coming months, while wholesale trade and professional and high-tech services contacts expected spending to increase.
Real Estate and Construction
District real estate activity rose slightly since the last survey period and was above year-ago levels. Residential real estate sales held steady in October and early November, although sales were higher than a year ago. Residential construction activity rose modestly over the previous survey period as starts, traffic of potential buyers, and construction supply sales rose. However, expectations were for a decrease in residential construction activity moving into the winter months. Commercial real estate activity inched up as sales, absorption, and completions rose while vacancy rates fell and construction underway held steady. Overall activity in the commercial real estate sector was projected to grow slightly.
Overall loan demand rose slightly during the survey period, although demand across categories was mixed. Bankers noted higher demand for commercial real estate and consumer installment loans, but experienced flat demand for residential real estate loans, and lower demand for commercial and industrial and agricultural loans. Bankers continued to see modest improvement in loan quality compared to levels at the same time last year and expected loan quality to hold steady during the next six months. Credit standards held steady across all major loan categories. Deposits edged up, although several bankers noted poor demand for certificates of deposits during the survey period.
District energy activity decreased since the previous survey period, and expectations for future drilling and business activity eased. The number of active rigs continued to decline across most states but was primarily driven by a decrease in Oklahoma. Oil and gas production eased slightly, but still remained at generally high levels. As a result, production levels continued to support strong mid-stream and transportation activity. Revenues and profit levels of regional firms fell compared to a year ago and earlier this year, in part due to lower commodity prices. District employment levels and capital expenditures in the industry also eased.
The Tenth District farm economy remained weak, and agricultural credit conditions deteriorated slightly. In the most recent survey period, regional contacts reported that farm income and loan repayment rates continued to decline at a modest pace. Demand for farm loans remained strong, but the pace of growth slowed from previous survey periods. Despite some support from government payments connected to ongoing trade disputes, most bankers pointed to an ongoing environment of low agricultural commodity prices and elevated costs as the primary factors contributing to further weakness. As profit opportunities remained limited, producer working capital deteriorated slightly, and a modest number of borrowers were expected to sell assets before the end of the year to improve liquidity.
For more information about District economic conditions visit: www.KansasCityFed.org/Research/RegionalEconomy