April 25, 2007 Federal Reserve Districts Tenth District--Kansas City

Skip to content Summary Districts Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Full report

The Tenth District economy expanded moderately in March and early April. Consumer spending rebounded after slowing earlier in the year, and labor markets expanded solidly. Agricultural conditions also improved, and commercial real estate activity increased. On the other hand, residential real estate remained weak, growth in manufacturing activity slowed, and energy activity eased slightly. Wage pressures edged higher, and many materials prices also increased. However, retail price pressures generally remained modest. Consumer Spending Consumer spending expanded solidly in March and early April. Retail activity rebounded from a largely weather-related slump in previous months, and sales were above year-ago levels in most stores and restaurants. Apparel sales were particularly strong, while purchases of home-related items remained weak. Retailers generally expected strong sales growth in the months ahead, though some expressed concern about rising gasoline prices. Auto dealers reported that vehicle sales also increased from the previous survey and were similar to year-ago levels. Truck sales remained sluggish, but demand for most other types of vehicles was strong, and all dealers expected further improvement in the months ahead. Travel and tourism activity expanded solidly in March and early April. Hotels in energy-intensive areas of the District noted strong demand. Rocky Mountain ski resorts also reported strong visitor counts and increased spending from a year ago, and most tourism contacts anticipated favorable growth heading forward. Manufacturing Growth in manufacturing activity slowed in March and early April. Most plant managers reported only small increases in output and shipments compared with previous months, and production of residential construction-related materials declined. In contrast, strength was noted among manufacturers of agriculture- and energy-related products, aircraft, and primary metals. Capital spending plans generally remained solid, with slight increases planned at some firms. Most plant managers expected strong factory activity in the coming months, due in part to projected growth in exports, particularly for semiconductors and beef. However, recent increases in some materials prices put pressure on profits of several manufacturers that were not able to raise output prices as quickly. Real Estate and Construction Residential real estate activity remained weak in most District cities, while commercial real estate activity showed solid gains. Builders in most cities reported that residential construction remained sluggish, and they generally expected home starts to remain flat in the months ahead. An oversupply of houses persisted in most of the District, with the exception of areas heavy in energy-related activity. Residential home sales were unchanged overall from the previous survey and still down from a year ago. Homes in the low-to-mid-level price range were said to be selling relatively well, while sales of high-end homes were generally characterized as weak. Most real estate agents anticipated solid growth in home sales heading forward and inventories to gradually return to normal levels. Home prices were largely unchanged from a year ago and were expected to remain steady in the coming months. Commercial real estate activity improved since the previous survey. Vacancy rates fell in most cities, while absorption rates and prices for office space increased. Commercial construction also rose, especially for public works projects, following a period of little growth. Commercial real estate agents generally expected further gains in absorption, construction, and office prices in the near future. Banking Bankers reported that both loans and deposits were unchanged since the last survey. Demand for commercial, industrial, and commercial real estate loans edged up, while demand for residential mortgage loans declined. On the deposit side, CDs were slightly higher than in the prior period, while NOW accounts were weak. Lending rates and lending standards were unchanged. Energy Energy activity slower further in March and early April but remained at a relatively high level. The District rig count was down from the previous survey period and from a year ago. The recent decline was offset somewhat by the opening of some land for drilling on the western slope of Colorado. Most contacts attributed the overall recent decline in rig activity to increased drilling costs. However, contacts still reported high demand for auxiliary services associated with drilling, such as cement casing, formation evaluation, and well stimulation. Most energy contacts expected solid activity to continue, as long as futures prices remain high. Agriculture Agricultural conditions improved since the previous survey period. Heavy rains and snow eased drought conditions across the District. The winter wheat crop was in good to very good condition, though a recent freeze may lower yields in parts of Kansas and Oklahoma. Higher corn prices caused a shift in the crop mix toward corn production. Harsh winter weather limited cattle weight gains and forced livestock operators to use supplemental feed. A recent rebound in cattle prices improved profit margins for livestock producers. While rising farm income expectations have boosted cash rents and farmland values, farmers remain somewhat cautious about capital spending plans. Labor Markets and Wages Labor markets expanded solidly in March and early April, and wage pressures rose after easing in the previous survey. Hiring announcements outpaced layoffs by a sizeable margin, especially in manufacturing and business services. The majority of firms continued to report labor shortages, especially for IT, skilled manufacturing, service, sales, and energy-related workers. Wage pressures returned to previous high levels after easing slightly earlier in the year. To ensure sustained productivity, some firms reported moving to a salary structure that adds a performance-based payment to a base wage. Prices Retail price pressures remained modest, but prices for most input materials increased. The majority of retail contacts reported flat selling prices. However, a few retailers expected prices to increase heading forward. Building contractors reported increases in most materials, including asphalt, concrete, steel, and copper. However, lumber prices were forecasted to decline in the months ahead. The share of manufacturers reporting rising materials costs continued to grow, and most firms expected further increases, particularly for steel, oil-based products, and food inputs. However, the share of factories raising finished goods prices fell slightly, as some firms were unable to pass-through recent cost increases. Return to top Minneapolis Dallas