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The district economy held steady in October and early November after showing some signs of weakness in previous surveys. Manufacturers reported higher levels of activity, the construction sector remained solid, and energy activity continued a rebound that began in the spring. Retail sales declined again but are expected to be strong through the holidays. In the farm economy, the winter wheat crop was in good condition despite dry weather. Labor markets in most of the district remained very tight, but reports of wage pressures edged down from the previous survey. Retail prices were flat, while prices for some construction and manufacturing materials rose further.
Retail Sales
Retail activity in the district continued to decline, but expectations for the holiday shopping season remained strong. Some contacts suggested that warmer weather may have contributed to weaker clothing sales. Exceptions to the slower activity included gift items and home appliances. Most stores have finished building up holiday inventories, and managers expect strong seasonal sales to bring stock levels down by the end of the year. Motor vehicle sales weakened in much of the district. While the weakness was due partly to seasonal factors, sales also dropped below year-ago levels and some weakness was reported in the previously hot sport-utility vehicle market. Dealers expect slow sales to continue throughout the winter months. Availability concerns continued for some models of light trucks, with reports of some dealers traveling to Canadian auctions in search of vehicles.
Manufacturing
District factory activity improved in October and November, with most plants reporting high levels of capacity utilization. Expectations for future activity softened somewhat but remained positive. Manufacturing materials other than aluminum and electrical components remained generally available. Lead times continued to edge up, but there were few concerns about future material availability. Although efforts to trim stock levels will continue at some firms, managers remained fairly satisfied with inventories.
Housing
Builders in most parts of the district reported continued growth in housing starts, as warmer weather helped postpone the typical seasonal downturn in activity. Most builders expect slower activity over the next few months. Material availability improved again, although builders in some areas continued to have problems obtaining gypsum wallboard. Home sales were mixed across the district, with inventories of unsold homes continuing to build up in some rural areas. Mortgage demand for both home refinancings and new home purchases fell due to higher mortgage rates.
Banking
Bankers report that deposits increased somewhat more than loans over the past month, slightly reducing loan-deposit ratios. Demand increased for commercial and industrial loans, commercial real estate loans, and consumer loans. Demand fell for home mortgage loans, construction loans, and agricultural loans. On the deposit side, large time deposits, NOW accounts, and MMDAs all edged up. Most respondent banks increased their prime rate last month, and almost all remaining banks plan to raise their prime rate in the near future. Half the banks raised their consumer lending rates, and the other half expect to raise these rates in the near future. Lending standards were generally unchanged.
Energy
District energy activity continued to rise along with energy prices. The active rig count in mid-November rose to 22 percent above a year ago and 80 percent above the March low. Contacts in several energy-producing areas of the district reported that the rebound in energy activity has had a positive effect on their local economies.
Agriculture
The district's winter wheat crop is generally in good condition despite unusually dry weather, but timely rainfall is needed by next spring to replenish soil moisture and improve crop growing conditions. The dry weather has also slowed growth of pastures, but other forages are in ample supply for the winter. Crop prices remain low, holding down feed costs and boosting profits for district livestock producers. District feedlots are full and some cattle ranchers are beginning to expand their breeding herds. With improved profits in the cattle industry and big government subsidies to crop producers, district bankers expect relatively few farm loan repayment problems to surface during credit reviews this winter. Bankers report generally steady farmland values due to demand by both farmers and other investors.
Wages and Prices
Labor markets remained very tight in much of the district.
Most contacts reported difficulties finding workers, particularly for entry-level positions. Building craftsmen, part-time retail and manufacturing workers, truck drivers, and corrections officers were especially scarce in some areas. Slightly fewer manufacturers and builders reported increases in wage pressures than in the previous survey, but wage pressures in the retail sector remained widespread. Retail prices were flat and are expected to stay largely unchanged during the holiday season. Prices for some manufacturing materials, such as fabrics and chemicals, increased and are expected to continue rising. Prices for construction materials also rose slightly, especially in areas experiencing supply problems. Further price increases are anticipated in these areas.
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Minneapolis