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The district economy continued to grow moderately last month, fueled by further improvements in retail sales and construction and fairly strong activity in manufacturing. Even the recently weak energy sector experienced marginal improvements last month. In the farm economy, prospects for bumper corn and soybean crops have depressed crop prices, while pasture conditions have generally been good. Labor markets in much of the district were still very tight last month, and evidence of wage pressures, although present, remained relatively stable. Prices edged up at the retail level and for some construction materials. In contrast, prices for most manufacturing materials continued to decline as a result of the Asian crisis.
Retailers reported sales improved further last month, following the robust performance in the past several months. Although most respondents expect sales to improve slightly over the next three months, retailers in general are less optimistic than in our previous survey. Inventories last month were practically unchanged. Retailers reported they are satisfied with current stocks and expect no major inventory changes in the near future. Automobile dealers reported marginal improvements due mainly to strong sales of light trucks. However, total sales were slightly lower than a year ago, leaving inventories unchanged. Most dealers are generally satisfied with current stock levels except for GM vehicles. Inventories are likely to expand in the coming months as new models are released.
Tenth District manufacturing activity remained fairly strong last month with plants operating at high levels of capacity. Manufacturing materials were generally available, with only spotty evidence of marginal increases in lead times. Inventories last month were flat, and managers reported mixed feelings about their satisfaction with current stock levels. However, manufacturers plan to trim inventories somewhat in the near future.
Strong momentum continued in construction activity with builders reporting that housing starts remained relatively high last month, and well above year-ago levels. Builders expect a seasonal flattening in construction activity in the coming months. While sales of new homes were up again, they grew at a slower pace than in the recent past. The consistently strong sales have left inventories of unsold new homes at low levels. Mortgage lenders reported that demand last month was generally unchanged, but remained well above year-ago levels. Home purchases continued to account for close to half of mortgage activity. Although less optimistic than in our previous survey, lenders expect mortgage demand to stay modestly strong over the next three months as rates remain low.
Bankers reported that loans and deposits both edged up last month, leaving loan-deposit ratios little changed. Consumer loans, home mortgage loans, and agricultural loans increased, while other loan categories were generally unchanged. Increases in money market deposit accounts and large CDs accounted for the rise in deposits.
All respondent banks left their prime lending rates unchanged last month. Most banks also held their consumer lending rates constant, although a few lowered rates. Some banks expect to lower their prime rate and consumer lending rates in the near future, while others say they are unsure what will happen to these rates. A few banks tightened lending standards last month, citing concerns over economic conditions.
District energy activity rebounded slightly in August after falling in July. The district rig count was up 3 percent for the month but remains 22 percent below the level posted a year ago. The August rise in activity was likely a result of small increases in energy prices in July. Prices began to fall again in August, however, and the recent improvements are likely to be short-lived. The price of West Texas Intermediate Crude was down 4 percent to $13.44 per barrel, the lowest average monthly price in more than 12 years. Natural gas prices plunged 16 percent, reaching their lowest levels since early 1997.
District corn and soybean producers expect a bumper crop, with some producers predicting corn yields 20 percent above normal. The exception to the strong conditions is Oklahoma, where producers may plow under fall crops due to drought damage, and ranchers face poor range conditions and low prices. Elsewhere in the district, pasture conditions are generally good, but most ranchers are losing money due to low prices for feeder cattle. Likewise, operators of cattle feedlots in the district are suffering large losses and have cut back on purchases of feeder cattle.
In spite of low prices for most producers, district bankers are not overly concerned about the condition of their agricultural loan portfolios. Most portfolios are only slightly weaker than a year ago. In particular, most farmers and ranchers entered the current period of low prices with substantial equity to ride out the storm.
Wages and Prices
Labor markets remained very tight last month in much of the district, with continued, but not increasing, evidence of moderate wage pressures. Employers reported difficulties in hiring additional workers at almost all levels. Retailers complained mostly of a lack of entry-level and sales workers, while manufacturers reported labor shortages across the board, with production workers and engineers particularly scarce. Builders continued to face severe labor shortages as construction activity remained strong. Almost all respondents reported difficulties in finding and retaining information technology workers. Moderate wage pressures remained in place, although they did not appear to be intensifying from our last survey. Wage pressures continued to be concentrated in a few sectors, such as construction, and in particular areas of expertise, such as information technology. Prices edged up at the retail level and are expected to remain relatively constant in the near future. Prices for most manufacturing materials continued to decline as a result of the Asian crisis. Prices of some construction materials, such as cement, insulation, and drywall, were up slightly last month as builders faced increasing difficulties in obtaining them. However, builders expect prices of materials to remain stable over the next three months.