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The district economy continued to grow moderately last month, with no major signs of easing. Retail sales maintained a strong momentum into the summer, construction activity improved further, and manufacturing activity remained fairly strong. An exception was energy activity, which was flat. In the farm economy, corn and soybean crops enjoyed good conditions, while pasture conditions were poor. Operators of cattle feedlots and hog producers continued to lose money. Labor markets in much of the district remained very tight, with more evidence of wage pressures than in the recent past. Prices edged down at the retail level and declined slightly for most manufacturing materials. In contrast, prices were up slightly for some construction materials.
Retail Sales
Retailers reported a slight increase in sales last month, improving on the robust performance of the previous period. Most respondents expect sales to improve considerably over the next three months. Inventories expanded modestly last month, and retailers were generally satisfied with current stocks. Inventories in the near future are likely to expand to match seasonal growth in demand. Automobile dealers reported good performance last month as sales of sport utility vehicles and light trucks remained strong. Total sales were moderately higher than a year ago. Inventories edged up once again, with the exception of GM vehicles. Most dealers were generally satisfied with current stock levels but plan to trim inventories in the coming months after seasonally stronger summer sales subside.
Manufacturing
Manufacturing activity remained fairly strong last month with plants operating at high levels of capacity. More difficulties with obtaining materials were reported compared with the last survey period. Only a few respondents reported slight increases in lead times. Inventories were generally unchanged. Although most managers remained unsatisfied with current stock levels, they plan no major changes in the near future.
Housing
Builders reported that housing starts remained high last month and were well above year ago levels. Although many builders expect additional gains in construction activity in the coming months, they are less optimistic than in the last survey. Sales of new homes were up again last month, leaving inventories of unsold new homes at low to moderate levels. According to mortgage lenders, demand last month was generally unchanged but remained well above year-ago levels. Home purchases accounted for almost half of mortgage activity. Lenders expect mortgage demand to stay strong over the next three months as rates remain low.
Banking
Bankers reported that loans and deposits both rose last month, leaving loan-deposit ratios unchanged. Commercial and industrial loans, home mortage loans, and home equity loans increased, while other loan categories were little changed. Increases in demand deposits and money market deposit accounts were partly offset by a decline in large CDs.
All respondent banks left their prime lending rates unchanged last month and 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
Despite a fall in prices, district energy remained fairly steady last month, after a marginal improvement in the previous period. Natural gas prices fell, though not by as much as in May. Crude oil prices fell in June to their lowest levels since 1986. The district rig count was practically flat in June but was 18.7 percent lower than a year ago.
Agriculture
The district's corn and soybean crops in June were in good condition and crops were developing on schedule in most parts of the district owing to favorable weather conditions. In the cattle industry, pasture conditions continued to be poor and some cow-calf producers may liquidate herds if rainfall is not received within the next month. Some district banks remained concerned that cattle feedlot operators were continuing to lose money, although losses have slowed recently. Hog producers were also losing money, and many small hog producers have already liquidated their herds. Larger producers have not trimmed their herds. Area bankers reported that in spite of high farmland prices the debt-to-equity ratio on farmland loans remained stable. Producers have been using cash reserves built up over the past two years to finance purchases of land.
Wages and Prices
Labor markets remained very tight last month in much of the district, with somewhat more evidence of wage pressures than in previous reports. Retailers complained of persistent problems hiring entry-level workers, while manufacturers reported increased labor shortages of skilled workers, especially welders and machinists. With construction activity strong, builders faced significant labor shortages and reported a severe scarcity of select trades such as framers. Additionally, most respondents reported difficulties in hiring and maintaining workers in the information technology field. As a result of persistently tight labor markets, there were more reports of wage pressures than in previous surveys. Wage pressures were more concentrated in construction activity and areas requiring skilled workers in general, such as information technology employees. Prices were steady to slightly down at the retail level, and prices for most manufacturing materials continued to decline. Prices of some construction materials, such as cement and sheetrock, were up slightly last month, and builders expect them to remain high over the next three months. Retailers expect no major price changes in the coming months.
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Minneapolis