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The Tenth District economy grew solidly in late March and early April. Growth in manufacturing activity increased, consumer spending expanded, and labor markets firmed. Energy activity continued to rise, while drought conditions eased but remained a concern in the agricultural sector. Commercial real estate activity held steady, and residential construction declined somewhat. Wage pressures and wholesale price pressures rose slightly, while retail price pressures edged down.
Consumer Spending
Consumer spending expanded solidly in the period from late March to early April. Most retail contacts reported that sales were higher than in the prior survey period and above year-ago levels. However, several mall managers noted a decline in traffic in recent weeks. For the most part, store managers were satisfied with inventory levels and continue to be optimistic about future sales. Auto dealers reported that sales in late March and early April were up slightly from the previous survey period but generally lower than a year ago. Fuel-efficient cars were reported to be selling well, while sales of large SUVs and pickup trucks were characterized as weak. Inventory levels were said to be satisfactory at most dealerships, and dealers generally expect sales to hold steady in the coming months. Travel and tourism contacts reported solid growth in activity since the previous survey. Passenger counts were higher than a year ago at most airports across the district, and several airports reported record traffic. Hotel occupancy rates also remained higher than a year ago in most areas. Contacts generally expect that tourism activity will stay strong in the months ahead.
Manufacturing
Manufacturing activity in the district continued to expand in late March and early April. Many plant managers reported increases in production and new orders, and growth in capital spending increased after slowing somewhat in the previous survey period. A substantial fraction of respondents expect further increases in production going forward. Contacts reported that some materials, including steel and aluminum, had become more difficult to obtain than in previous survey periods. Most contacts expect these difficulties will not be resolved in the near future.
Real Estate and Construction
Residential construction declined slightly in late March and early April, and commercial real estate activity held steady. Most home builders reported that starts decreased somewhat since the previous survey. Many builders expect further declines in the months ahead, although new home construction is expected to remain strong in a few areas. Construction materials were generally reported to be readily available, and no significant problems obtaining materials are anticipated in the coming months. Residential real estate agents said that home sales were up slightly since the previous survey, and they expect sales to generally remain unchanged in the coming months. Inventories of unsold homes continued to rise in many markets and, for the most part, were well above year-ago levels. Home price appreciation remained modest in most areas, and real estate agents expect moderate growth in home prices going forward. Mortgage lenders reported a slight increase in home purchase loans since the previous survey and said demand was similar to a year ago. Demand for refinancings was unchanged from the previous survey and remained below year-ago levels. Commercial real estate activity in the district held steady in late March and early April. In most markets, vacancy rates and rents for commercial space were little changed from the previous survey period, although conditions remained stronger than a year ago. Commercial real estate markets are expected to improve slightly in the months ahead, and most contacts expect commercial construction to be at least as strong in 2006 as 2005.
Banking
Bankers reported that deposits increased and loans held steady since the last survey, causing a decline in loan-deposit ratios. Demand rose slightly for commercial and industrial loans, while demand for consumer loans, home equity loans, and commercial real estate loans fell somewhat. On the deposit side, all types of accounts increased. All respondents raised their prime lending rates and consumer lending rates since the last survey. Lending standards were unchanged.
Energy
Energy activity continued to expand in the district during late March and early April. The count of active oil and gas drilling rigs in the region increased modestly since the prior survey period and remained well above year-ago levels. Many contacts continued to report that shortages of equipment and workers were constraining drilling activity. Pipeline capacity was also reported to be limited in certain areas of the district. Nevertheless, firms throughout the district expect further increases in drilling in the months ahead.
Agriculture
Dry weather remained a concern in parts of the district despite scattered precipitation. In southern portions of the district, moisture received over the last month was lost to unusually warm and windy weather. District winter wheat conditions were poor, especially in Oklahoma. Planting of spring crops was reported to be running somewhat behind a year ago but in line with five-year averages. Pasture conditions remained poor in many areas despite the recent precipitation. As a result, some ranchers were forced to place calves in feedlots earlier than normal, putting downward pressure on fed cattle prices.
Labor Markets and Wages
Labor markets firmed in late March and early April, while wage pressures edged up. Hiring announcements outpaced layoff announcements by a sizeable margin. Several aerospace firms announced that they were expanding in the district, and a number of high-tech manufacturers also said they plan to add workers. A slightly larger percentage of contacts reported labor shortages than in the previous survey. Among the workers reported to be in short supply were auditors, auto technicians, skilled and unskilled manufacturing workers, oil and gas workers, and truck drivers. The fraction of firms reporting above-normal wage increases rose from the previous survey, although the share remained well below the levels seen throughout the late 1990s.
Prices
Wholesale price pressures increased slightly in late March and early April, but retail price pressures edged down. The percentage of manufacturers reporting increases in materials prices and the percentage reporting increases in finished goods prices were both little changed from the previous survey period. However, the share of plant managers expecting materials prices to rise in coming months and the share expecting finished goods prices to rise both edged up. Builders indicated that raw materials costs were mostly stable, and they did not expect any large increase in materials prices in the months ahead. The share of retailers reporting higher prices than a year ago was lower than in the previous survey, and the percentage of retail stores that plan price increases in the future also declined.
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Minneapolis