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The Tenth District economy posted moderate but uneven growth in the September reporting period. Restaurants, hotels, and general retailers reported a rebound in activity but auto sales remained soft. Manufacturing activity rebounded but did not translate into additional factory hiring. Residential and commercial real estate markets weakened further. District banks reported stable banking conditions overall with some deterioration in loan quality. Continued expansion in the energy sector supported increased hiring and capital spending. In agriculture, favorable crop growing conditions and attractive profit margins spurred capital spending and land price gains. Despite higher input prices, selling prices in most retail sectors remained unchanged, and little evidence of wage pressures was reported in District labor markets.
District retailers reported stronger than expected sales in September and indicated sales were higher relative to last year. Retailers remained optimistic that sales would continue to increase in the coming quarter but expected softness in selling prices. Restaurants reported much higher sales than a year ago and anticipated future sales gains going forward. The average check amount at restaurants remained flat, although menu prices increased. Automobile sales weakened considerably from the last reporting period but remained slightly above year-ago levels. Auto inventories continued to decline and dealers expressed satisfaction with current inventory levels. The lodging industry noted improved hotel occupancy rates with mountain resort bookings above year-ago rates. Some hoteliers indicated that the occupancy bounce was likely seasonal in nature but reported improved expectations for both occupancy and room rates.
Manufacturing and Other Business Activity
The Tenth District's manufacturing sector reported a mild rebound following softness in the prior reporting period. Factory operators reported expanded production, shipments, and new orders, and firms remained optimistic about future production levels. Despite increased activity, few firms reported planned increases in capital spending or hiring in the coming six months. The rebound in activity produced an increase in backlogs and raised expectations for future backlogs. Some improvement was reported in orders for export markets, though expectations for further expansion remained modest. Inventories of both raw materials and finished goods were reported as in balance with no planned changes from existing levels. The strength reported in manufacturing did not spillover to transportation firms as contacts noted unexpected weakness in activity. Some high-tech firms reported sales growth, but expectations for improvement in the coming two quarters were subdued. Capital spending activity by high-tech firms continued its upward trend but firms reported somewhat diminished expectations for the upcoming six months.
Real Estate and Construction
Residential and commercial real estate activity continued to decline. Residential respondents reported decreased sales volumes and home prices in the District. However, some movement was noted in upper-end home sales. Housing inventories continued to increase and were expected to rise further in coming months. In contrast, residential builders reported increased housing starts, traffic, and new home prices. Mortgage refinancing activity continued to expand while home purchase loans decreased. Construction supply firms noted anemic conditions, with expectations of continued decline. Commercial real estate respondents reported no vacancy rate changes, but sales, prices, rents, completions, and absorptions were lower, with little to no expectation of conditions improving in the next quarter. The majority of real estate and construction respondents noted economic uncertainty among customers as a drag on any recovery.
Bankers reported steady loan demand, stable deposits, and an unchanged outlook for loan quality. Consistent with the last several reports, overall loan demand was little changed. Demand edged up for commercial and industrial loans and residential real estate loans but decreased for consumer installment loans. Demand for commercial real estate loans was stable. Credit standards were unchanged in all major loan categories, after tightening modestly on commercial real estate loans in the last two reports. Somewhat more bankers reported deterioration in loan quality from one year ago than reported an improvement. However, for the fourth straight report, respondents expected no change in loan quality over the next six months. Deposits were basically flat, continuing the pattern since late last year.
Energy industry activity continued to expand District-wide in the latest reporting period. Oil and gas respondents reported sharply increased activity relative to both month-ago and year-ago levels. The number of active drilling rigs expanded but continued to lag rig deployments nationally. District exploration remained focused on crude oil and natural gas liquids, especially in New Mexico and Oklahoma. Gas rig counts expanded in Colorado but contracted in Oklahoma. Oil and gas firms reported equipment shortages and some difficulty finding qualified workers, especially in rural areas. A few firms reported limited access to capital and rising operating costs as constraints on drilling activity. Wyoming coal production expanded rapidly since the last report, with train car loadings reaching a yearly high in the Powder River Basin. Anticipated long-run demand from international nuclear power projects prompted expansion in District uranium production, despite continued low market prices.
Agricultural conditions remained favorable since the last reporting period. The majority of the corn and soybean crops were rated in good to excellent condition with expectations of bumper yields. The fall harvest was on schedule and winter wheat planting was progressing well. Crop prices strengthened further, boosting income expectations for District farmers. Higher feed costs, however, trimmed incomes for livestock producers. Stronger profits for crop producers spurred higher cropland values and a rebound in capital spending on agricultural equipment and grain storage facilities. Repayment rates on farm loans improved with higher incomes, and lenders reported a drop in the number of loan renewals and extensions.
Wages and Prices
Raw materials prices increased, although selling prices and wages remained flat. District manufacturers reported that raw materials prices remained above year-ago levels and expected the upward trend to extend into the next six months. Selling prices in most sectors remained flat since the last reporting period but were generally below a year ago. Menu prices at restaurants increased modestly from month- and year-ago levels, and respondents expected prices to continue to increase, pressured by rising food costs. Firms continued to report little evidence of wage pressures across District labor markets and did not expect pressure in the near future.