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The district economy expanded modestly in March and early April. Retail sales were again outstanding, with vehicle sales rebounding nicely from slower activity earlier in the year. Construction activity remained strong, and energy activity may be poised for a turnaround following the recent jump in oil prices. Manufacturing activity held steady, although at a relatively weak level when compared with a year ago. In the farm economy, the winter wheat crop remained in good condition and growing conditions continue to be generally favorable. Labor markets in most of the district remained very tight, with wage pressures continuing to mount. Retail prices edged up, as did prices for some construction materials, while prices for several manufacturing materials fell as factories took advantage of cheap imports.
Retail Sales
Retail activity in March and early April remained strong, as sales compared with both recent months and a year ago continued to rise. Shoes sold exceptionally well during the Easter season, and sales of women's sportswear took off with the arrival of warm weather. Purchases of home furnishings were also stronger than normal. Inventories at most stores have leveled off over the last month, and managers are now largely content with current stock levels heading into summer. With consumers remaining upbeat about the national economy, retailers contacted in our survey were overwhelmingly optimistic about sales in coming months. Automobile sales picked up considerably last month from the slow activity earlier in the year, thanks in part to increased demand for used passenger cars. New trucks and SUVs remained the hottest sellers, however, and most dealers complained of shortages of these vehicles. Like most other retailers, auto dealers remain very optimistic about sales in the near future.
Manufacturing
Tenth District manufacturing activity held steady last month, albeit at a relatively weak level. Plants were operating at similar capacities - medium to high - as in our previous survey, but still well below levels posted a year ago. Manufacturing materials were generally available with lead times practically unchanged, and managers had little concern about availability in the near future. Factories began modestly increasing inventories in March and early April, and managers were happier with current stock levels than in the recent past. The increases were small, however, and most survey contacts anticipate having to trim inventories in coming months as stiff competition from low-price imports continues.
Housing
Construction activity remained strong last month, although housing starts in some parts of the district were slightly below last year's pace. Nearly all builders expect even better performance in the months ahead. For the first time in several surveys, a majority of builders complained of difficulties obtaining materials, particularly sheetrock. Moreover, a large number anticipate further problems in the near future. Home sales in the district improved after weakening slightly in our previous survey, putting inventories of unsold homes at more comfortable levels. Mortgage bankers reported a decline in refinancing activity last month, as most people have already taken advantage of low rates. But demand for new homes remained steady, and most lenders are cautiously optimistic about future loan demand.
Banking
Bankers report that loans edged up and deposits increased modestly last month, reducing loan-deposit ratios. Commercial and industrial loans, commercial real estate loans, and residential real estate loans all experienced healthy growth, while consumer loans decreased slightly. Deposit growth was due to increases in demand deposits, NOW accounts, and money market deposit accounts. All respondent banks left their prime lending rates unchanged last month, and all expect rates to remain unchanged in the near future. Almost all banks maintained their consumer lending rates, and all expect to hold rates constant in the near term.
Energy
District energy activity continued to decline in March despite sizable increases in oil prices. However, the rig count began to edge up during the first few weeks of April as prices continued to rise, suggesting that the energy sector may be poised for a rebound. Most analysts believed that drilling would begin again when prices reached around $16 per barrel. By early April, the price of West Texas Intermediate crude oil had jumped more than 40 percent since mid-February, to roughly $16.50 per barrel, putting the price above year-ago levels for the first time since early 1997. The rise in prices has occurred largely as a result of OPEC's recent announcement of production cuts, but also due to increasing concern over the war in the Balkans. Natural gas prices fell slightly in March and, despite moderate increases in April, remain well below year-ago levels.
Agriculture
The district winter wheat crop remains in good shape, and growing conditions continue to be generally favorable. Wheat pasture is also reported to be in good condition. The number of farm sales has not increased appreciably this spring, and values for district farmland continue to hold steady. Moreover, despite low commodity prices, bankers do not report any significant downward adjustment in cash rents. District bankers indicate that a small percentage of borrowers will not be extended credit this spring. In most cases, bankers will require fewer than 5 percent of their borrowers to obtain loan guarantees from the Farm Service Agency.
Wages and Prices
Labor markets remained very tight in most of the district in March and early April, with wage pressures continuing to mount. As in our previous survey, the construction sector faced the biggest wage pressures, but the manufacturing and retail sectors have quickly been catching up. Retailers' biggest labor needs remain entry-level workers and sales associates. Labor shortages among manufacturers are still primarily for skilled tradesmen such as machinists and welders, although entry-level production workers are also becoming harder to find. Builders continue to face shortages across the board, especially for masons and framers. Retail prices began to edge up in March but are expected to level off in the near future. Prices for most manufacturing materials fell slightly in March as more factories began taking advantage of cheaper imports, but prices for some materials, such as paper, are expected to rise in coming months. As for construction materials, sheetrock prices continued to rise due to availability problems, and prices for both sheetrock and insulation are expected to rise in the near future.
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Minneapolis