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The Tenth District economy expanded moderately in late October and early November.
Most retailers posted additional sales gains, factory activity increased further,
and labor markets showed continued improvement. Housing activity remained solid,
and the energy and agriculture sectors were still strong. On the negative side,
commercial real estate markets generally remained weak. Wage pressures were
still modest, but some price pressures persisted for manufacturers and builders.
Consumer Spending
Consumer spending in the district increased further in late October and early
November. Most store and mall managers reported solid year-over-year sales gains,
and almost no stores reported declines compared with last year. Sales of luxury
items, such as jewelry and designer clothing, were reported as especially strong
at several stores. Almost all managers were optimistic about holiday sales.
Most managers were expanding inventories at least as much as a year ago, and
those that were not generally attributed their leaner inventories to their improved
ability to adjust stock levels quickly. Motor vehicle sales in the district
were flat for the second survey in a row and still slightly lower than a year
ago in most areas. Most auto dealers contacted were satisfied with inventory
levels. However, a number of dealerships still had excess vehicles, especially
in Denver and Kansas City. Most dealers anticipate a pickup in sales in coming
months, due to reduced consumer uncertainty following the election and quality
improvements in new model year vehicles. Travel and tourism activity in the
district was solid in late October and early November, as airport traffic and
hotel occupancy rates remained above year-ago levels in most cities. Looking
ahead, Rocky Mountain resorts reported solid increases in advance hotel bookings
and ski pass sales from a year ago. They also expect an increase in international
visitors this winter due to recent declines in the value of the dollar.
Manufacturing
District manufacturing activity expanded moderately in late October and early
November. Manufacturers reported increased production and orders, though the
increase in orders was not as strong as in past surveys. Firms continued to
add employees at a rate similar to the previous survey. About half of plant
managers reported some difficulties obtaining materials, especially petroleum-based
materials, and they generally expect these problems to persist. Factories remained
quite optimistic about future production, and many firms plan to continue to
increase employment and capital spending at a moderate rate in coming months.
Real Estate and Construction
Housing activity remained solid in late October and early November, while commercial
real estate activity was still weak. Overall, single-family housing starts in
the district were flat compared with recent months, although starts were still
high by historical standards. Construction was characterized as stronger for
lower-priced homes than for higher-priced homes in most areas. Most builders
expect solid levels of construction to continue in the months ahead and generally
expect few materials availability problems. According to realtors, home sales
in most parts of the district continued to ease slightly from the high levels
reached earlier in the year, and virtually all realtors noted at least some
excess inventory of homes. Sales were reported as weakest for higher-priced
homes. Most realtors expect home sales to remain solid in the months ahead.
Home prices in most cities were reported to be up slightly from the previous
survey and are expected to post continued modest increases heading forward.
Mortgage lenders reported flat mortgage demand over the past month, with slightly
stronger demand for refinancings than for home-purchase loans. Heading forward,
lenders generally expect refinancings to slow somewhat but home-purchase loans
to pick up slightly. Commercial real estate activity in the district was still
weak but generally stable. Absorption rates were reported to be up modestly
in some cities. However, because the supply of new space also increased somewhat,
vacancy rates were largely unchanged. As in the previous survey, about half
of the commercial realtors contacted expect some improvement in vacancy rates
over the next six months.
Banking
Bankers report that both loans and deposits held steady since the last survey,
leaving loan-deposit ratios unchanged. Demand rose for commercial and industrial
loans and commercial real estate loans but fell for consumer loans and home
equity loans. Demand for home mortgage loans was unchanged. On the deposit side,
all major types of accounts were flat. Almost all respondent banks raised their
prime lending rates and consumer lending rates since the last survey. Lending
standards were unchanged.
Energy
District energy activity remained very strong in late October and early November
but eased slightly from the previous survey. The count of active oil and gas
drilling rigs in the region edged down to mid-summer levels but was still well
above year-ago levels. About half of contacts continue to report constraints
on drilling due to labor and equipment shortages. Absent these constraints--which
are expected to persist for at least another six months--contacts believe drilling
could increase by 10 to 20 percent.
Agriculture
Agricultural conditions in the district were strong in late October and early
November. The harvest of spring-planted crops was nearly complete, and producers
reported above-average quality and yields, especially for corn and soybeans.
Winter wheat planting was also completed, and conditions were favorable heading
into the dormancy period. In the livestock market, the price of feeder cattle
moved down slightly since the last survey, but ranchers were still reluctant
to expand herds. Agricultural bankers generally expect farm income to reach
a new record in 2004.
Labor Markets, Wages, and Prices
Wage pressures remained modest despite further firming in labor markets, but
price pressures persisted for manufacturers and builders. Labor markets showed
further steady improvement, as layoff announcements continued to decline and
hiring announcements remained solid. Hiring of temporary workers was reported
as stronger in some areas but little changed from recent months in other areas.
A number of firms continued to have difficulty finding qualified workers, especially
in the energy sector and for some skilled factory and repair positions. However,
wage pressures were still generally modest outside of the energy sector. Most
retailers reported flat selling prices compared with previous surveys, though
some sellers of furniture, flooring, appliances, and hardware continued to report
modest price increases. Retailers and mall managers generally expect holiday
price promotions to be similar to previous years. Virtually all builders continued
to report higher prices for a broad range of materials, including lumber, drywall,
cement, and steel products. However, they generally expect these prices to level
off in the near future. A large number of manufacturers also continued to report
higher materials costs, and many of these firms reported increases in output
prices as well. Most plant managers expect input price pressures to persist
in the months ahead, though some anticipate a pause in the rise in steel prices.
As for output prices, several firms previously unable to raise their prices
believe they will soon be able to do so.
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Minneapolis