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The district economy continues to grow at a moderate pace. During the past month retail sales edged up, construction activity picked up slightly, and manufacturing activity remained fairly strong. One weak note was a slight decline in energy activity. In the farm economy, the winter wheat crop is in good shape, and the quality of wheat pasture is good to excellent. Labor markets remain tight in much of the district, with continued evidence of moderate wage pressures. Prices generally held steady at the retail level and for construction materials. Price changes were mixed for manufacturing materials, with some slight increases for some materials and declines for others.
Retail Sales
Retailers report sales edged up last month, and were moderately above year ago levels. All respondents expect to continue growing sales over the next three months. While most retailers thought current stocks were too large, they do not anticipate major changes in inventories in the coming months. Automobile dealers report mixed results last month, with sales overall moderately lower than a year ago. Sales of sport utility vehicles and light trucks remained strong, while sales of passenger cars were weak. Dealers have trimmed inventories slightly and are generally satisfied with current stock levels. Respondents expect to increase inventories to match seasonal stronger sales in the coming months.
Manufacturing
Manufacturing plants operated at moderately high levels of capacity last month as activity continued to expand. Purchasing managers report that raw materials were generally available and there were no noticeable changes in lead times. Inventories edged down last month, and further reduction is expected in the near future as stocks exceed desired levels. A quarterly survey of district manufacturers indicate that production increased slightly, while shipments and new orders both posted slight declines from December 1997 to January 1998. New orders from exports also declined slightly, reflecting lower export demand from Asia and the effects of a strong dollar.
Housing
Builders report housing starts rose slightly last month, moderately above year ago levels. Builders anticipate additional gains in construction activity in the coming months as mild weather provides a seasonal lift. Sales of new homes were slightly higher last month, above levels reached a year ago. Inventories of unsold new homes remain at moderate to slightly high levels. Most building materials were readily available and delivery times were normal. Mortgage lenders say demand was up slightly last month, boosted by a rush of refinancings. Mortgage demand for home purchases is expected to increase somewhat in coming months while demand for refinancing is likely to level out from the strong increases registered in previous months.
Banking
Bankers report that loans and deposits generally held steady last month, leaving loan-deposit ratios little changed. All loan categories were flat except home mortgages, which increased somewhat. Money market deposit accounts edged up, NOW accounts declined slightly, and other deposit categories remained unchanged.
Almost all respondent banks left their prime lending rates unchanged last month and expect to hold rates steady in the near term. All banks held their consumer lending rates constant and most banks anticipate no future changes. Lending standards were unchanged.
Energy
District energy activity edged down in the last two months after short-lived improvement in activity in December. Mild winter weather contributed to further decline of both crude oil and natural gas prices last month. Both prices remained well below year-ago levels. Reflecting lower prices, the district rig count was down 5.0 percent in January and fell another 1.4 percent in February to a level only 1.3 percent higher than a year ago.
Agriculture
The district's winter wheat crop is in good condition, and the quality of wheat pasture is good to excellent. Relatively high prices for feeder cattle should help ranchers earn modest profits in 1998. However, operators of cattle feedlots are losing money due to low prices for slaughter cattle and the losses may persist through the first half of the year. Low hog prices have not slowed expansion by large, integrated operations, but many smaller producers are liquidating their herds. Farmland rents around the district have continued to edge up. Rural businesses are earning modest profits.
Wages and Prices
Labor markets remained tight last month in much of the district, with continued evidence of moderate wage pressures. Retailers report a shortage of entry-level workers due to the availability of other jobs at higher wages in other sectors. Manufacturers have began to report low-skill labor shortages in addition to ongoing problems hiring skilled and technical workers. Builders say workers are hard to find in general, but framers, brick layers, and dry wallers are especially difficult to hire. Some companies have raised wages more than in the recent past to attract or retain workers, while many say wage increases are about average. Retailers report that prices were generally unchanged last month. Prices increased slightly for some manufacturing materials, such as rubber and carbon, and edged down for chemicals. Prices of construction materials held steady. Retailers expect no major price changes in the coming months.
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Minneapolis