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The district economy continued to grow moderately the past month. Retail sales increased over the holidays, energy activity improved, and manufacturing activity remained fairly strong. The only sign of weakness was a slight slowdown in construction activity. In the farm economy, the winter wheat crop is in good shape and ranchers are expected to benefit from good quality pasture. Labor markets remain tight in much of the district, with more evidence of wage pressures than in the recent past. Prices edged up for some manufacturing materials and at the retail level.
Retail Sales
Retailers report sales increased last month during the holiday season but were generally unchanged from a year ago. Retailers remain optimistic that sales will hold steady or edge up over the next three months. Most retailers were satisfied with current stocks but expect to trim inventories slightly in the coming months. Automobile dealers report sales edged up last month but were slightly lower than a year ago. Sales of sport utility vehicles remained strong, while sales of other vehicles held steady. Dealers have kept inventories unchanged as they expect no major shifts of sales in the coming months.
Manufacturing
Manufacturing activity continued to expand last month, with plants operating at moderately high levels of capacity. Purchasing agents reported some difficulties obtaining materials due to rail-shipping delays, which increased lead times. Some agents expect rail-transportation problems to continue in the near future. In spite of a moderate decline in inventories last month, most manufacturers say they plan further reductions because stocks exceed desired levels.
Housing
Builders report housing starts were down slightly last month but up somewhat from a year ago. Builders anticipate a normal seasonal improvement in construction activity in the coming months. Sales of new homes edged down last month due primarily to seasonal factors, resulting in a slight increase in inventories of unsold new homes. Most building materials were readily available and delivery times were normal. Mortgage lenders say demand was unchanged last month, but demand is expected to increase somewhat in coming months as more consumers refinance mortgages.
Banking
Bankers report that both loans and deposits increased last month, while loan-deposit ratios edged downward. Loans increased in all categories except consumer loans and home equity loans, which were flat. Increases in demand deposits, NOW accounts, and money market deposit accounts outweighed declines in large CDs and small time deposits.
All respondent banks left their prime lending rates unchanged last month and most expect to hold rates steady in the near term. Most banks did not change their consumer lending rates and anticipate no future changes. Lending standards were unchanged at most banks.
Energy
District energy activity improved last month after declining for three consecutive months. Crude oil prices fell but not as much as natural gas prices. Both prices remained well below year ago levels. Despite lower prices, the district rig count was up 11 percent in December to a level 17 percent higher than a year ago.
Agriculture
The district's winter wheat crop is in good shape with favorable growing conditions, and wheat pasture is reported as good to excellent. Good quality wheat pasture should benefit ranchers planning to graze calves through the winter. Area bankers indicate that ranchers have experienced a rebound, and cattle loan portfolios are healthier than a year ago. The railroad shortage did not appear to have a significant impact on district producers and businesses. However, the shortage of rail cars did pose a slight delay in transporting grain.
The financial condition of district farmers is extremely strong, perhaps the best in recent years. The majority of the farm loan portfolios in the district are doing well, with very few loans turned down due to financial weakness. Loan demand is expected to increase in grain-producing areas, while areas of the district that produce livestock are not anticipating an increase in demand. Due to healthy profits for district farmers, farm equipment dealers are enjoying a substantial increase in sales, while auto and truck sales have risen more slowly.
Wages and Prices
Labor markets remained tight last month in much of the district, with somewhat more evidence of wage pressures than in previous reports. Retailers and manufacturers report a shortage of workers at almost all levels. Builders say framers and other skilled tradesmen are hard to find. And respondents from many firms complain that computer-related positions can not be filled. Some companies have raised wages more than in the recent past to attract or retain workers, while many say wage increases were about average. Most retailers report steady prices, while a few say prices edged up last month. Prices increased slightly for some manufacturing materials, such as metals, while prices of construction materials held steady. Retailers expect prices to decline slightly in the coming months.
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Minneapolis