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Growth in the Tenth District economy edged higher in October and early November but remained moderate overall. Consumer spending improved further, and manufacturing activity rose modestly. High-tech firms reported generally strong growth, and the energy industry continued to expand at a robust pace. Bankers reported mostly steady loan demand, better loan quality, and rising deposits. Transportation firms reported stable activity, while agricultural activity was mixed due to varying rainfall and drought conditions across the District. Residential and commercial real estate activity remained sluggish, though some improvements were noted. Prices were generally flat, and wage pressures were limited outside of several skilled labor positions.
Consumer Spending
Consumer spending strengthened, and expectations improved for the months ahead. Retail sales continued to grow solidly, and the majority of contacts expected continued sales growth in coming months. Sales of apparel and seasonal outerwear were noted as particularly strong, while a few contacts characterized sales of high-end appliances and jewelry items as weak. Store inventories leveled out somewhat but were above year-ago levels in most establishments. Auto sales remained solid, with several dealers reporting high demand for mid-size SUVs and fuel efficient vehicles. Expectations for future auto sales were mostly positive, and auto inventories increased slightly over the previous survey. Restaurant sales improved, with further growth expected in coming months. Tourist activity was largely flat, but some contacts were cautiously optimistic about the upcoming winter season.
Manufacturing and Other Business Activity
District manufacturing activity edged higher from the previous survey, and expectations rebounded after easing somewhat the past few months. Factory orders slowed slightly, but shipments increased and hiring plans remained solid. Plant managers indicated moderate growth in capital spending plans. Transportation firms noted generally stable conditions, but expectations for future activity increased over the previous survey and capital spending plans were positive. The majority of high-tech services firms reported strong growth in sales and expected this trend to continue. Future capital expenditure plans at high-tech firms remained solid.
Real Estate and Construction
Residential and commercial real estate activity remained generally sluggish in October and early November. Housing starts dropped from the previous survey, with construction of higher-priced homes particularly weak. Expectations for future homebuilding remained slow, and materials were generally available. Sales at residential construction supply firms improved somewhat, driven in part by an increase in remodeling as more consumers updated existing homes. Home sales picked up slightly but remained weak overall. Expectations for future home sales were more positive than in previous months, and home inventories drifted lower as home prices continued to ease in most areas. Mortgage lending activity was positive and remained above year-ago levels, though some contacts reported continued buyer financing difficulties. Commercial real estate activity edged higher from the previous survey, but remained sluggish overall with little further improvement expected. Vacancy rates dropped slightly, though they were expected to rise somewhat in future months. Office prices and rents increased but remained below year-ago levels, and expectations were flat. One contact in Joplin, Missouri noted considerable building activity as a result of the devastating tornado in that area last spring.
Banking
Most bankers reported steady or stronger loan demand, stable or improving loan quality, and increased deposits compared with the previous survey. Overall loan demand increased marginally as demand for commercial and residential real estate loans strengthened, demand for consumer installment loans declined, and demand for commercial and industrial loans weakened slightly. Credit standards remained largely unchanged in all major loan categories, and deposits increased for the seventh straight survey. Bankers generally reported loan quality as steady or improving compared to a year ago, with even more improvement expected for the next six months.
Energy
Energy activity continued to expand strongly in October and early November. Nearly all contacts reported an increase in drilling activity and were optimistic about the months ahead. Crude oil prices remained favorable for drilling, and one contact noted that overall drilling activity was approaching levels reached before the price collapse in 2008. However, contacts reported that shortages of equipment and labor continued to constrain the rate of increase in exploration to some degree, and one producer said the delay in the Keystone Pipeline project was hindering future growth.
Agriculture
Agricultural activity varied across the District in October and early November. Northern portions of the District, which received ample summer precipitation, reported above average corn and soybean yields at harvest and the majority of Nebraska�s wheat crop emerged in good condition. In contrast, drought conditions severely cut crop production in the District�s southern regions, with Kansas and Oklahoma winter wheat crops in fair or poor condition. Robust export demand continued to boost crop and livestock prices. Farm income rose in areas with bumper harvests, while crop insurance was expected to mitigate losses in cases of poor yields or crop failure. Strong farm income boosted farm loan repayment rates and trimmed demand for operating loans. With rising farm income and strong demand from both farmers and non-farm investors, District farmland values posted another record high, with the strongest gains in the northern Plains.
Wages and Prices
Price levels were generally stable, and wage pressures remained mostly contained, outside of a few skilled positions. Manufacturing price pressures moderated somewhat, especially for raw materials, and fewer firms planned to raise selling prices. Prices for construction materials stabilized, and retail prices were also flat as fewer firms expected increases. However, transportation firms reported continued high input prices, and restaurants expected higher menu prices due to rising food costs. Wage pressures were still contained in most industries. However, some firms reported difficulties finding skilled workers and were forced to raise wages, particularly in energy and information technology fields. Hiring plans were generally solid for most firms, particularly those in the energy, information technology, and manufacturing sectors.
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Minneapolis