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Economic growth in the Tenth District continued to slow, with gains largely limited to energy- and agriculture-focused regions. Consumer spending was flat on net since February and manufacturing activity slowed further. Residential real estate activity remained weak, with some exceptions in energy-producing regions. Commercial real estate activity also slowed, with reports of recent municipal bond problems potentially reducing the scope of planned projects. High commodity prices continued to bolster the energy and agricultural sectors. Labor markets slowed, but continued to show growth. Reports of wage pressures continued to be lower than last year, but price pressures were reported at many stages of production.
Consumer Spending
Consumer spending remained flat overall since February. Retailers' reports were balanced between growth and contraction on the month, but generally pointed to lower sales than a year ago. Mall traffic was reported to be down and slower sales were partly attributed to higher gasoline prices. Retailers expected business activity to recover somewhat in the coming months but felt inventory levels would rise further. While still down from last year, auto dealers reported a rebound in March sales, partly driven by incentives. Travel and tourism activity remained solid with higher average room rates reported in many areas. Restaurants reported higher sales compared to last month though the average check amount was unchanged.
Manufacturing
Manufacturing activity continued to slow in March, but modest expansion was expected in coming months. District plants reported lower production levels and a substantial decrease in new orders. A capital goods producer reported that firms appeared to be "hunkering down" to avoid exposure in a volatile marketplace. Employment expectations dropped further as well. On a positive note, exporters' expectations for orders rose in response to the weaker dollar. However, one exporter reported shipping backlogs due to a lack of ocean-going shipping containers and tight railroad transportation to ports.
Real Estate and Construction
Residential real estate activity was flat from the last report and commercial real estate activity was stable in March. Inventories remained high and sales were below last year's level, but were expected to improve seasonally. A major Colorado Realtor reported that activity in the "move-up" market remained weak, while overall activity was flat. Home prices continued to edge down in most areas, with the exception of some agricultural and energy intensive areas. Commercial real estate sales dipped compared to the previous period, but construction was up from both month- and year-ago levels. Commercial vacancy rates in the District remained stable; however, commercial realtors anticipated rising absorption rates. Rents continue to move higher when leases terminate. Developers noted economic uncertainty and stricter underwriting standards have lengthened the approval process for new projects. The recent difficulties in municipal bond markets were also reportedly raising the costs for public projects and causing some projects to be scaled back.
Banking
Bankers reported tighter credit standards and slightly weaker loan demand than in the previous survey but were somewhat less pessimistic about future loan quality. Demand declined modestly for consumer installment loans but remained essentially unchanged in other categories. A little less than half of respondents reported a tightening of credit standards for commercial real estate loans, about the same fraction as in the previous survey. There were also some reports of tightened standards for commercial and industrial loans, consumer installment loans, and residential real estate loans. About the same fraction of banks as in the previous survey reported that overall loan quality was down from a year ago. However, a somewhat smaller fraction of respondents expected loan quality to decline over the next six months. For the first time in several surveys, bank deposits improved moderately, led by gains in interest-bearing checking accounts and money market deposit accounts.
Energy
District energy activity showed continued growth in March. Respondents reported increased drilling activity from the last survey. Oklahoma and Colorado showed the strongest growth in the number of active drilling rigs during the period. Firms again reported that drilling was being constrained by the lack of qualified labor, but the companies did not expect to raise wages in order to attract workers. Credit conditions remained favorable in the industry, and contacts continued to expect further growth in activity.
Agriculture
Agricultural conditions remained favorable since the last survey period. The winter wheat crop was reported in good condition, except in extremely dry areas of Kansas and Oklahoma. District contacts reported a shift in crop mix that reduces corn acreage and increases soybean plantings. The switch was attributed to relatively high soybean prices and higher corn production costs, as well as typical rotations for soil management and crop productivity. Livestock producers continued to lose money due to higher feed costs. A number of mid-sized feedlots were reported to be at risk for failure. Funds availability for the agricultural sector remained healthy and loan demand and capital spending was robust. Farmland values continued to rise at a brisk pace.
Wages and Prices
Price pressures intensified in March but wage pressures were steady. District factories reported paying higher prices for raw materials, noting increases in metal prices and agricultural commodity prices in particular. Manufacturers reported more finished goods price increases than in previous surveys and expected additional increases in coming months. However, some factories experienced difficulties passing higher costs on to customers, given weakened demand in some industries. Builders reported that high fuel costs were raising the cost of wood products and roofing materials. Restaurants reported higher food costs and planned to raise menu prices in the future. Yet retail price reports showed no substantial change. The number of firms reporting wage pressures and difficulty hiring workers was little changed over the month, but still below last year. District hiring announcements continued to outpace layoff announcements and on net employment in the region likely grew.
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Minneapolis