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Growth in the Tenth District economy showed some signs of moderating in late July and August, although business contacts remained generally optimistic about future economic activity. Consumer spending was not quite as strong as earlier in the year, the recovery in manufacturing appeared to lose some momentum, and some commercial real estate markets weakened further. On the positive side, residential construction remained solid, and energy activity held on to previous gains. In the farm economy, corn and soybean crops were in bad condition due to the drought. As in previous surveys, wage and retail price pressures were virtually nonexistent, while prices for some manufacturing materials continued to increase.
Consumer Spending
Retailers in the district reported that sales were flat to slightly lower in late July and August compared with earlier in the summer. On a year-over-year basis, sales were largely unchanged in most places. Among merchandise categories, home furnishings and apparel were strongest, while sporting goods continued to show some weakness. Store managers generally reported that inventory levels were in line with expectations. Nearly all managers remained optimistic about sales in coming months and were preparing to increase stock levels for the fall season. Motor vehicle sales held steady in August after picking up following the reintroduction of financing incentives in July. However, most dealers reported that sales were slightly below year-ago levels. Looking ahead, dealers expect sales to increase modestly with the start of the new model year and will build inventories accordingly. Travel and tourism remained solid in most of the district but slowed in Colorado, where a slump in business travel has held down hotel occupancy rates in Denver and the recent rash of wildfires has reduced out-of-state tourist visits.
Manufacturing
The recovery in district manufacturing activity appeared to pause in late July and August, with factory activity showing fewer signs of improvement than in previous surveys. Production and shipments remained a little below year-ago levels following steady increases during most of the first half of the year. Most firms were operating at moderate levels of capacity, and plant managers said they expected factory activity to increase over the next six months. However, firms continued to show little enthusiasm for new hiring or capital spending, saying they were waiting for further signs of improvement in the overall economy before making any major new commitments.
Real Estate and Construction
Residential real estate activity remained solid in late July and August, but some commercial real estate markets declined further. Single-family construction in most places continued to be above year-ago levels, with starts stronger for entry-level houses than for higher-priced homes. Most builders expect home construction to continue on a steady pace for the remainder of the year and do not expect any significant difficulties in obtaining materials. Home sales remained solid in most of the district in late July and August, although the inventory of unsold homes was up in Denver. Sales were particularly strong for entry-level homes. Most realtors expect a slight slowdown in activity in coming months due to increased caution on the part of buyers. Mortgage lenders reported a sizable increase in demand for home loans, particularly for refinancings. Lenders reported that, compared with the previous survey, more refinancings were for the purpose of taking cash out than for reducing the amount or term of the loan. Mortgage demand is generally expected to remain solid in coming months. Commercial real estate activity in district cities either remained weak or contracted further. Realtors reported that sales and prices of office space declined again in Denver and Tulsa, while vacancy rates continued to edge up in several places. Some "build-to-suit" office projects continued to come online across the district, but speculative building was virtually nonexistent. Commercial realtors expect office conditions to remain weak for the foreseeable future.
Banking
Bankers reported that loans and deposits both held steady since the last survey, leaving loan-deposit ratios unchanged. Demand rose somewhat for home equity loans, edged down for commercial real estate loans, and was generally unchanged in other loan categories. On the deposit side, increases in liquid accounts such as demand deposits and money market deposit accounts were offset by decreases in large CD's and small time deposits. All respondent banks left their prime lending rates unchanged, and most banks also held their consumer lending rates steady. Banks did not report any changes in lending standards.
Energy
Energy activity in the district remained strong in late July and August. The count of active oil and gas drilling rigs in the region held steady after rising earlier in the summer. Oil prices rose and natural gas prices in most of the district were largely unchanged since the last survey. Natural gas prices in Wyoming, however, remained depressed and are expected to stay low until a new pipeline to California is completed next spring. Looking ahead, most district energy contacts expect slow, steady growth in energy demand.
Agriculture
The district's corn and soybean crops were in poor condition due to the drought. As a result, district bankers expect crop insurance payments to be a significant source of income for producers this year. Conditions for winter wheat planting were generally poor because of the lack of moisture, which could result in reduced acreage. Poor pasture conditions have forced many ranchers to buy hay and other feedstuffs sooner than normal and at rising prices. Across the district, corn was being harvested early for forage rather than grain. Some cattle producers were placing young cattle in feedlots earlier than normal and still others have been forced to sell part of their breeding herd. Rural bankers indicated small business activity was sluggish, especially in predominantly agricultural areas.
Wages and Prices
Wage and price pressures were virtually nonexistent across the district in late July and August. Labor markets remained soft, with most employers having no problems finding quality workers. As in previous surveys, labor shortages were reported for only a few select occupations. However, some contacts reported labor negotiations were slightly more difficult than in the recent past, and layoff announcements fell sharply in August after rising steadily in the spring and early summer. Wage pressures remained very subdued across the district, but many contacts expressed concern about the cost of rising health care premiums. Retail prices were largely unchanged from previous surveys and are expected to remain flat in coming months. Some stores, however, reported smaller markdowns than during past summer clearance seasons. Builders reported generally flat materials prices in late July and August. As expected, lumber prices leveled off after rising earlier in the summer, and builders do not expect any significant price increases in the fall. Some manufacturers reported further rises in materials prices, including steel products and petroleum-based chemicals. Many plant managers expect moderate materials price increases to continue through the fall.
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Minneapolis