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The Tenth District economy improved slightly in late August and September. Retailers and auto dealers reported stronger sales and anticipated further gains in the months ahead. Sales were weaker at restaurants and hotels, leading to pessimism in these industries as the holiday season approaches. Manufacturing activity rose at durable goods factories, and the high-tech services industry experienced strong growth, while transportation activity was flat. Residential and commercial real estate and construction contacts continued to report weak conditions. Bank deposits continued to increase, while loan demand and loan quality deteriorated slightly. Crop conditions varied across the District, but farm income expectations remained strong. The energy sector expanded further with production increasing for oil, natural gas and coal. As input prices continued to increase, more contacts expected to raise prices in the coming months. But wage pressures eased from already low levels.
Consumer Spending
In late August and September, consumer spending increased in the retail and auto sectors but declined slightly in the restaurant and travel sectors. District retailers reported strong sales and expected additional increases during the next three months. Luxury goods, such as jewelry and custom-upholstered furniture, sold particularly well. One contact noted an uptick in sales among both high-end and low-end customers, but reported that those in the middle were holding back. Auto sales were also higher than expected despite several contacts describing low consumer confidence due to economic and political uncertainty. Many auto dealers reported difficulty finding qualified sales people and technicians. Restaurant sales were lower than anticipated but were expected to remain steady over the next three months. Despite slightly lower average room rates, hotel occupancy decreased, and District hotel owners expected further declines in the coming months.
Manufacturing and Other Business Activity
Manufacturing and high-tech service activity continued to grow during the survey period, while transportation activity was flat. Manufacturing activity increased at durable goods factories, particularly firms producing aircraft and computer equipment. These increases helped to offset a slight decline in activity at non-durable goods plants. Shipment and new order volumes edged up during the survey period, and firms expected both to improve over the coming months. With an overall increase in activity, firms hired additional workers and slightly increased employee hours. Manufacturers continued to anticipate higher capital spending over the next six months, but these expectations were dampened somewhat compared to the previous survey. The high-tech industry reported steady growth in sales, and firms expected activity to be strong over the next three months. Transportation activity was flat during the survey period, and contacts reported continued difficulty finding skilled technicians and drivers.
Real Estate and Construction
Residential and commercial real estate activity remained weak during late August and September. Residential sales were flat during the survey period, and home prices were down. Real estate contacts expected sales to be much slower in the coming months, but many attributed this to the seasonal slowdown. Residential mortgage lenders continued to report an increase in refinancing activity due to low mortgage rates, but very little new loan activity. Construction supply firms saw sales fall during the survey period, and they expected upcoming sales to be weak due to the seasonal slowdown of the construction industry. Housing starts were flat, and builders did not foresee activity increasing in the next three months. Multi-family building projects were the only area of reported growth by commercial construction contacts. Commercial real estate sales and prices continued to decline, and vacancy rates were flat. District contacts expected commercial prices and rents to decline further in the coming months. Developers reported no change in their access to credit.
Banking
In the recent survey period, bankers reported increased deposits, but somewhat weaker loan demand and a slight deterioration in loan quality. Overall loan demand decreased slightly as demand for consumer installment loans declined, while demand for commercial and industrial loans, commercial real estate loans, and residential real estate loans was marginally weaker. Credit standards remained largely unchanged in all major loan categories, and deposits increased for the sixth straight survey. Bankers reported a minor deterioration in loan quality compared to a year ago but anticipated some improvement in the outlook for loan quality over the next six months.
Agriculture
Agricultural conditions continued to vary across the District. Northern portions of the District, which received ample rain, expected bumper crops, while crops in the southern portions of the District continued to suffer under drought conditions. Most of the corn and soybean crops in Nebraska were rated in good or better condition as harvest began, while Kansas expected yields well below average due to drought. Winter wheat planting was delayed in some areas of Oklahoma as farmers waited for rain, but planting was on schedule in Kansas and Nebraska. Despite recent downturns in crop prices, farm income expectations remained strong. Robust export demand supported livestock prices, but high feed costs trimmed profit margins. Farm loan demand remained weak as capital spending slowed further and some producers paid cash for higher input costs. District contacts indicated that prices of farmland sold at auction continued to post record highs.
Energy
Energy activity continued to expand in late August and September, and activity was expected to grow further over the next three months. The number of active drilling rigs for both oil and natural gas increased in the District. Oklahoma and Wyoming showed the largest growth in rig counts, which helped to offset slight decreases in New Mexico and Kansas. Contacts continued to report that future drilling activity was being constrained by a lack of qualified labor and the availability of equipment and supplies. Contacts reported having a difficult time attracting experienced skilled workers due to increased competition among firms. The price of crude oil was expected to decrease over the next three months, but natural gas prices were expected to increase as winter demand increases. Coal production increased slightly during the survey period.
Wages and Prices
District contacts reported higher prices for both inputs and finished goods, but wage pressures eased from already low levels. More manufacturers reported increases in raw material prices and finished goods prices in September, and most expected further increases over the next six months. Input prices also rose for building materials, especially roofing materials. Prices held steady at retail stores but were expected to increase in the coming months. Restaurant contacts also anticipated raising menu prices as food prices continued to climb. Contacts from several industries reported difficulties finding qualified workers for skilled positions, but fewer firms than in recent surveys reported increasing wages in response. Across all industries, most contacts expected wage increases to remain stable over the next three months.
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Minneapolis