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The district economy continued to grow moderately last month. Retail sales were robust, construction activity improved further, and manufacturing activity remained fairly strong. The only sign of weakness was a continuing decline in energy activity. In the farm economy, the winter wheat crop was in good condition and feedlots were operating at or near full capacity. Labor markets remained quite 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 slight increases for some materials and declines for others.
Retail Sales
Retailers reported robust sales last month, strongly above year-ago levels. All respondents expect sales to be steady over the next three months. Most retailers were satisfied with current stocks and plan no major changes in the next several months beyond seasonal variations. Automobile dealers reported mixed results last month, with overall sales moderately lower than a year ago. Sales of sport utility vehicles and light trucks remained strong, while sales of passenger cars were weak. Dealers expanded inventories slightly for used and some new model cars and reported mixed feeling with respect to current stock levels. Respondents expected to increase inventories to match seasonally stronger sales in the coming months.
Manufacturing
Manufacturing plants operated at high levels of capacity last month as activity continued to expand. Purchasing managers reported some difficulties obtaining materials such as steel and engine parts. There were also reports of modest increases in lead times. All respondents have been trimming inventories and plan further reductions in the near future.
Housing
Builders reported housing starts were up slightly last month and were moderately above levels of a year ago. Builders anticipate additional gains in construction activity in the coming months due to seasonal factors and favorable economic fundamentals. Sales of new homes edged up last month and were slightly above year-ago levels. Inventories of unsold new homes remain at moderate, comfortable levels. Most building materials were readily available and delivery times were normal. Mortgage lenders say demand flattened last month, with refinancing dominating the activities. A seasonal increase in mortgage demand is expected in coming months.
Banking
Bankers reported that loans and deposits both increased somewhat last month, leaving loan-deposit ratios unchanged. Home mortgage loans, home equity loans, commercial and industrial loans, and agricultural loans all rose, while consumer loans fell. Increases in demand deposits, NOW accounts, and money market market deposit accounts offset a decline in large CDs.
All respondent banks left their prime lending rates unchanged last month and almost all expect to hold rates steady in the near term. Most banks held their consumer lending rates constant and anticipate no future changes. Lending standards were generally unchanged.
Energy
District energy activity continued to decline last month, as energy prices were mixed. Natural gas prices improved slightly, while crude oil prices fell to their lowest levels in four years. The district rig count was down for the third consecutive month, falling 12.6 percent in March to a level 13.4 percent lower than a year ago.
Agriculture
The district's winter wheat crop is in good condition. Planting of spring crops may be delayed by several weeks due to wet conditions across the district. Producers are beginning to modify slightly their crop mix and plant more corn or other alternative crops instead of wheat. District feedlots are at or near full capacity. Cattle marketings are staying current, while placements of cattle into feedlots are expected to subside later in the summer. Overall, despite recent losses, cattle producers are optimistic about the future as they expect prices to increase this summer. Low hog prices have led many small producers to liquidate their herds. The larger, contract-oriented hog operations have been hindered more by state regulations and environmental concerns than by poor market prices.
Wages and Prices
Labor markets remained quite tight last month in much of the district, with continued, but not increasing, evidence of moderate wage pressures. Manufacturers continued to report problems hiring skilled and line workers, while retailers were unable to fill all entry-level positions. Stronger than expected construction activity made it harder for builders to hire additional workers, especially framers and tradesmen. Despite tight labor markets, firms reported that wage pressures are moderate and do not appear to be getting worse. Some firms are designing separate salary and benefit packages for especially scarce skilled workers, such as information technology employees, while others have increased overtime. Retailers reported that prices were generally unchanged from last month. Prices edged up for some manufacturing materials, partially due to higher transportation costs. Prices edged down for others, such as aluminum, due to lower demand from Asia. Prices of construction materials held steady. Retailers expect no major price changes in the coming months.
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Minneapolis