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The district economy grew moderately again last month, but signs of easing are still present. Retail sales rebounded, and automobile sales enjoyed a good month. Construction activity also remained fairly solid, although housing starts continued to grow at a slower pace than earlier in the year. Manufacturing activity last month was flat and expectations about the future are substantially lower than in recent past. The energy sector slipped back into decline, as oil prices began falling again. In the farm economy, corn and soybean yields came in above average, while hog producers experienced sizable losses. Labor markets remained very tight in most of the district, with slightly less evidence of wage pressures than in our last survey, especially in the manufacturing sector. Prices were subdued at the retail level and mixed for construction materials, while prices for most manufacturing materials continued to decline.
Retail Sales
Retailers reported a rebound in sales last month and expect a strong holiday season. Inventories expanded in preparation for the Christmas season, and most managers are satisfied with current stock levels. However, most retailers plan to reduce stock levels after the holidays. Automobile sales recovered nicely last month, led by strong performance of trucks and sport utility vehicles. Sales are now moderately above year-ago levels. Dealers are cautiously optimistic about the near future as some seasonal decline in sales is expected over the next few months. Following the GM strike, dealers have been vigorously expanding vehicle inventories and expect further expansion in the near future. More dealers reported a tightening in consumer credit compared to the recent past.
Manufacturing
Tenth District manufacturing activity was largely unchanged last month, with plants operating at lower levels of capacity than in the first half of the year. Manufacturing materials were generally available, and lead times again declined slightly. Managers were less satisfied with inventory levels than in the recent past, and most plan to continue cutting back. A quarterly survey of district manufacturers indicated that, by most measures, growth in the sector slowed from the previous survey. New orders for exports declined as a result of weak foreign markets. Survey respondents were substantially less optimistic about the future than in the recent past.
Housing
Construction activity remained solid as housing starts continued to grow at a healthy pace, although more slowly than the brisk rates registered earlier in the year. Despite a slight decline in sales of new homes, builders were somewhat more optimistic about future activity than in our last survey. Inventories of unsold homes were practically unchanged from the previous month as slower activity was matched by slower sales. Lenders reported that mortgage demand declined slightly last month, as refinancing activity slowed but remained well above year-ago levels. Reflecting lower mortgage rates, lenders were more optimistic about future demand than they have been in the recent past.
Banking
Bankers reported that both loans and deposits were stable last month, leaving loan- deposit ratios unchanged. Demand increased for both commercial real estate loans and home mortgage loans, with refinancing accounting for most of the growth in the latter category. Other loan categories were little changed. On the deposit side, decreases in NOW accounts were offset by increases in money market deposit accounts. All respondent banks decreased their prime lending rate at least once during the last month. Most banks lowered their consumer lending rates, although a few left these rates unchanged. Most banks do not expect to lower their prime rate or consumer lending rates in the near future. A few banks tightened lending standards, and some banks indicated they were less willing to make agricultural loans due to lower commodity prices.
Energy
District energy activity began falling again in October and November, after a brief period of modest gains. The district rig count reached a new low, down 7 percent in October and another 10 percent in November. The decline in activity was expected since oil prices started to edge down again after a few weeks of small gains in September. The price of West Texas Intermediate crude fell below $12 per barrel by the end of November. Natural gas prices posted a 4 percent rise in October, but both oil and gas prices remained more than 35 percent below year-ago levels.
Agriculture
District producers report that corn and soybean yields were well above average in most areas. Most of the wheat pasture in the district is doing well with favorable growing conditions, although there may be somewhat less pasture available due to the late planting of the wheat crop. With hog prices at the lowest levels in nearly 30 years, producers in the district are experiencing losses close to $35 per head. Many small hog producers in the district are liquidating their herds. District bankers report that their overall farm portfolios have deteriorated from a year ago and concern is rising. Most bankers do not expect significant repayment problems or foreclosures this year, but bankers expect many borrowers to carry over operating debt into next year. In spite of low commodity prices, farmland values and cash rents in the district have remained stable.
Wages and Prices
Labor markets remained very tight in most of the district, with slightly less evidence of wage pressures last month than in our previous survey. Labor markets are especially tight in areas such as Omaha and Denver, and in some sectors such as construction. Retailers continued to complain of a lack of entry-level and general sales workers, and manufacturers faced difficulties finding both skilled and unskilled production workers. Builders again reported labor shortages across the board, with the greatest need existing for framers, roofers, and carpenters. Wage pressures continue to be greatest in the retail and construction sectors, although pressures appear to have eased slightly for retailers and considerably more for manufacturers. Retail prices were practically dormant last month and are expected to remain stable in the near future. Prices for most manufacturing materials continued to decline and are likely to drop further. For example, prices are especially low for steel due to the Asian crisis. Prices of a few construction materials, such as cement and concrete, edged up last month.
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Minneapolis