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Growth in the Tenth District economy slowed to a modest pace in December and early January, but expectations suggested higher levels of activity in the coming months. Consumer spending was mixed. Manufacturing expanded at a slower pace while commercial real estate activity remained solid. Lending activity continued to expand while deposits held steady. Energy activity fell slightly but was still high by historical standards. Agricultural conditions were generally favorable, although severe winter weather posed a risk to affected areas. Residential real estate activity continued to decline. Retailers were optimistic about sales in the months ahead while manufacturers expected future activity to increase. Wage pressures moderated even while labor markets continued to expand. Overall price pressures eased slightly since the last survey. Fewer respondents expected price increases in manufacturing. However, some retailers expected to increase prices in the coming months.
Consumer spending was mixed in December and early January while expectations for future activity were positive among many retailers. Overall sales continued to edge down at auto dealers while inventories increased modestly. However, several respondents reported strength in the SUV category. A majority of retail stores reported that sales were flat or declined from the previous survey and sales were below expectation. However, retailers reported that overall sales were unchanged compared to a year ago and restaurants and shopping malls reported sales gains. Mall respondents reported strength in jewelry but weakness in shoe sales. Growth in overall holiday sales in the Rocky Mountain region appeared to be depressed by recent blizzards. Heavy snow also interrupted mountain transportation in late December, although holiday travel and tourism activity remained solid overall. District hotels continued to report high occupancy rates, particularly in resort areas. A significant number of automobile and retail establishments expected sales to increase through the first quarter. Many furniture and appliance retailers expected inventories to decline while a significant number of automobile dealers expected inventories to rise modestly. Most hotel and mall operators expected high levels of activity to continue over the coming months.
Growth at district manufacturers edged down in December and early January, though plant managers expected activity to rise in the future. Plant managers reported slower growth in production, employment, and shipments. However, some manufacturers reported that new orders rose in December, and capital expenditures were above year-ago levels. In the wake of ice storms in western Nebraska some manufacturers limited production to conserve power. Plant managers were optimistic about future activity. An increasing share of respondents expected increases in production, employment, capital expenditures, shipments, and export orders and declines in finished goods inventories.
Real Estate and Construction
Residential real estate activity continued to decrease in December and early January, while commercial real estate activity remained solid. Home sales declined and inventories remained above year-ago levels. Respondents reported weakness concentrated in the higher-priced segment with some strength in lower-priced homes. Builders indicated that home starts remained weak. Overall home prices were unchanged from a month ago and remained below year-ago levels. Expectations for sales were mixed, with some respondents anticipating declining prices in the coming months and others basing optimism on lower interest rates and a positive economic outlook. Commercial real estate sales were largely unchanged from a month ago. However, absorption of office space increased in most cities, and vacancy rates throughout the District were lower than a year ago. As a result, office prices and rents increased from a month ago and several respondents expected these increases to continue. Commercial real estate contacts anticipated adjustments to absorption and vacancies reflecting a firm market, even while sales were expected to be flat in the coming months.
Bankers reported that loans increased somewhat since the last survey, while deposits held steady. Demand for commercial and industrial loans and commercial real estate loans rose, while demand for residential mortgage loans edged down. On the deposit side, interest bearing deposits such as CDs and money market deposits were slightly higher than in the prior period, while demand deposits were lower. Lending rates and lending standards were reportedly unchanged.
Energy activity declined in December and early January but remained strong by historical standards. The count of active oil and gas drilling rigs in the region fell slightly compared with the previous survey but was still above year-ago levels. The recent decline was concentrated in the Rocky Mountain states. Energy contacts reported availability of labor as their top concern, with availability of equipment and services being the next most important factor limiting activity. Most contacts anticipated drilling activity to decline in the next three months.
Agricultural conditions improved in December, although drought continued to affect some areas. In parts of eastern Colorado, western Oklahoma and Nebraska, winter snowstorms disrupted power and transportation for rural residents. Inclement weather limited cattle weight gains and led to animal deaths in some areas. The winter wheat crop appeared to be in better condition in areas receiving recent precipitation. December snows provided cover for winter wheat and improved prospects for soil moisture and stream flows next spring. Corn and soybean yields were down from last year's outstanding levels. Higher crop prices boosted current and future incomes with more prevalent use of forward contracting. Higher crop prices, however, also boosted feed costs and limited profits for livestock producers.
Labor Markets and Wages
Labor markets continued to expand in the District, while wage pressures remained moderate. Hiring announcements continued to outpace layoffs. The majority of businesses reported some type of labor shortage, especially for skilled and specialized workers, including engineers, oil field workers, accountants, welders, sales people, and truck drivers. Lodging establishments reported shortages of housekeepers. Benefits costs were largely unchanged from the previous survey but remained above year-ago levels. The percentage of firms expecting to increase employment remained high but edged down from the previous month, while a lower percentage of firms expected wage pressures to increase.
Price pressures continued to moderate in December and early January. Most retail contacts reported flat selling prices. A significant number reported declines from the previous month, although retail prices were up from year ago levels. The share of manufacturers reporting increased materials costs edged up, while the share of factories raising finished goods prices dropped slightly. District contacts noted that price increases for some construction materials have moderated and were expected to edge down. Manufacturers expected declines in raw materials and finished goods prices. Many retail contacts reported flat selling prices while a number of respondents expected some increase in prices in the months ahead.