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The district economy continued to grow moderately last month, but signs of easing appear to be mounting. Retail sales and construction activity remained solid, growing at a slower pace than in the recent past. Manufacturing activity slowed slightly last month with fewer plants operating at high levels of capacity. The energy sector improved marginally for the second straight month, although gains are expected to be short-lived. In the farm economy, corn and soybean yields have been coming in below expectations, but record plantings should still lead to a large harvest. Labor markets remained very tight in most of the district, with continued evidence of moderate wage pressures. Prices edged up at the retail level and for some construction materials, while prices for most manufacturing materials continued to decline.
Retail Sales
Retailers reported moderately strong sales last month, with sales growing slower than in the recent past. Inventories have expanded considerably in response to expected stronger retail activity as the holiday season approaches. Most managers appear to be content with current stock levels, and no major changes are expected in the near future. Automobile sales have fallen off moderately over the last few months, with dealers attributing the slowdown more to supply deficiencies than to a lack of demand. In particular, shortages of GM trucks as a result of this summer's strike have led to shortages of all makes of trucks. Most dealers have been expanding inventories and plan to increase their stocks further over the next three months.
Manufacturing
Tenth District manufacturing activity slowed slightly last month, with fewer plants operating at high levels of capacity. Manufacturing materials were generally available, with lead time practically unchanged. Managers expressed mixed opinions about current inventory levels, but nearly all manufacturers have trimmed stocks over the last month and most plan to continue cutting back.
Housing
Construction activity eased slightly last month, as housing starts grew at a marginally slower pace than in the recent past. Builders expect a seasonal slowdown in activity in coming months and appear less optimistic than in our previous survey. Sales of new homes were virtually unchanged last month, with inventories of unsold homes up slightly from the low to very low levels registered in our last survey. Lenders reported that mortgage demand increased last month and remained much higher than a year ago as a result of strong refinancing activity. Although a seasonal slowdown is likely over the next three months, lenders expect modest to strong activity to persist as interest rates continue to come down.
Banking
Loans and deposits both edged up slightly last month, leaving loan-deposit ratios unchanged. Bankers reported demand for residential home mortgages and home equity loans was up sharply, largely attributable to home refinancings. Commercial and industrial loans for middle- to large-market firms declined slightly, while all other loan categories remained little changed. Increases in money market deposit accounts and demand deposits contributed to the overall increase in deposits.
All respondent banks but one decreased their prime lending rate, and all respondents planned to reduce their prime lending rate in the near term. Most banks held their consumer lending rates constant; however, most also expected to reduce consumer lending rates in the near term. A majority of banks left lending standards unchanged. A few banks reported a tightening of lending standards for all loan categories. Among those banks that tightened lending standards, the primary reason cited was a less favorable economic outlook. Respondent banks indicated their willingness to make loans was unchanged for all loan categories.
Energy
District energy activity improved marginally again in September as oil prices rose steadily during the month. However, activity is expected to decline as prices started to fall in early October. The price of West Texas Intermediate Crude was up 9 percent in September, reaching its highest level since May, while natural gas prices were unchanged from August. Both prices remained well below year ago levels. The rig count was up 2 percent last month, but was 19 percent below the level posted last year.
Agriculture
With the district corn and soybean harvest well underway, yields for both crops have been coming in below expectations. Nevertheless, record plantings should still lead to a large harvest. Winter wheat planting has been delayed by rains, and in many areas only half of the intended acreage has been planted. Growing conditions have improved recently, however, and most producers expect to have adequate wheat pasture this winter. Wheat pasture is an important source of forage for many district ranchers.
District bankers reported that their overall farm portfolios have deteriorated from a year ago, and concern is rising. However, most bankers do not expect significant repayment problems or foreclosures this fall, as many producers are expected to carry over operating debt into next year. Farmland values and cash rents in the district are weakening due to the low commodity prices. Rural mainstreet businesses in most areas of the district are feeling the effects of the downturn in the general farm economy; farm equipment sales in the district are very slow.
Wages and Prices
Labor markets remained very tight in most of the district last month, with continued evidence of moderate wage pressures. Employers complain that information technology workers remain scarce throughout the district. In addition, retailers continue to experience a lack of entry-level and sales workers, and manufacturers are still facing difficulties finding skilled laborers such as welders and machinists. Builders report that nearly all kinds of construction workers are in short supply, including carpenters, framers, and electricians, yet wage pressures in this sector do not appear to be any greater than in previous surveys. Retail prices edged up last month but are expected to remain stable in the near future. Prices for most manufacturing materials continued to decline and are likely to drop further. Prices of some construction materials, such as insulation and gypsum, were up slightly, while the cost of wood edged down last month. Builders expect only marginal increases in prices over the next three months.
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Minneapolis