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The district economy continued to grow moderately the past month, while showing a few signs of slowing. Manufacturing activity remained fairly strong. Holiday retail sales were somewhat less than expected, and construction activity edged downward. In the farm economy, the winter wheat crop remained in good condition and farm finances improved after an excellent fall harvest. Labor markets remained tight in much of the district, leading some firms to increase wages. Prices were generally stable at the retail level and for materials used in manufacturing and construction.
Retail Sales
Retailers report holiday sales were up only slightly from a year ago and somewhat lower than expected. Sales are expected to improve somewhat in the coming months, and some retailers plan to expand stocks to meet increased demand. Automobile dealers report sales were generally down from the previous month and a year ago. Sales of sport utility vehicles and light trucks remained strong, however, and some dealers say they are still short of such vehicles.
Manufacturing
Manufacturers continued to operate at moderately high levels of capacity last month. Manufacturing materials were generally available, with lead times either holding steady or declining. Manufacturers have been trimming their inventories, and some say they plan further reductions because stocks exceed desired levels.
Housing
Builders report housing starts slowed last month while remaining above year-ago levels. Most of the decline in starts was in single-family homes. Builders expect little change in construction activity in the first part of the year. Sales of new homes also fell somewhat last month. Most building materials were readily available and delivery times were normal. Mortgage lenders report demand was slightly lower last month.
Banking
Bankers report that loans and deposits both increased last month, leaving loan-to-deposit ratios little changed. Commercial and industrial loans, consumer loans, commercial real
estate loans, and agricultural loans all edged up. Demand deposits, NOW accounts, and money market deposit accounts also rose, while small time deposits and large CDs were flat.
Respondent banks held their prime lending rates steady last month and expect to leave rates unchanged in the near term. Banks also held their consumer lending rates steady and plan no changes in the near future. Some banks tightened their lending standards on consumer loans, citing increased delinquencies.
Energy
District energy activity declined slightly last month. Oil and gas prices continued to rise in December and remained well above year-ago levels. Despite the high prices, the district rig count edged down 2.3 percent in December and was unchanged from a year ago.
Agriculture
The district's winter wheat crop is in good condition, with adequate moisture but no snow cover to protect it from the winter weather. Wheat pasture is excellent this winter, in contrast to the past few years. Farm income rose in the district in 1996 due to excellent crops and high crop prices. The rise in farm income in 1996 appeared to help main street businesses, and farm vehicle and equipment sales have been quite strong recently.
Bankers report the higher farm income also led to some overall improvement in farm loan portfolios in the district. The quality of loans made to crop producers improved substantially in 1996. Performance of loans to livestock producers was mixed, with stronger performance by loans to cattle feeders offsetting weaker loans to ranchers. District bankers expect farm income will be mixed in 1997. Crop producers may see their income fall as yields and prices return to normal after an exceptional year in 1996. Lower feed costs and higher calf prices should help boost profits in the livestock industry this year.
Wages and Prices
Labor markets were still tight last month, and there continued to be some evidence of wage pressures. Manufacturers report skilled and unskilled workers remained in short supply, and some companies say they have responded by increasing wages. Prices held steady at the retail level and for most manufacturing and construction materials. Retailers expect no major price changes in coming months.
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Minneapolis