| Skip to content
|
The Tenth District economy remained solid overall in August. Retail sales continued to improve, manufacturing activity was stable, and the energy sector expanded further. One area of weakness was residential real estate, which continued to cool. In the farm economy, large corn and soybean harvests are expected to keep crop prices low. Tightness in district labor markets eased slightly, and wage pressures were similar to the recent past. While price pressures intensified for some manufacturing and construction materials, retail prices generally held steady.
Retail Sales
Most retailers reported steady or increasing activity from July to August. For the second survey in a row, sales were also up from a year ago at most stores. Sales of shoes and apparel at discount retailers were particularly strong, as consumers prepared for the start of the school year. On the other hand, apparel sales were weak at higher-end stores in the district. Store inventories have edged up since the previous survey, and managers' expectations of future retail activity remain very strong. Motor vehicle sales declined slightly in August. With the end of the 2000 model year, dealers were working to reduce inventories to make room for the new models. Expectations for vehicle sales in coming months remain rather subdued, however, particularly in some rural areas.
Manufacturing
District factory activity was stable in August after softening in July, and most firms reported medium to high levels of capacity utilization. However, weakness in the trucking industry due to higher fuel costs has adversely affected some producers of transportation equipment in the district. Material availability problems surfaced in August for a few items, including glass and plastic, but remained manageable. Meanwhile, lead times were largely unchanged. Many plants continued to report a reduction in inventories, with plans for further trimming of stock levels in coming months.
Real Estate and Construction
Residential construction activity continued to slow in August, and nearly all homebuilders contacted for the survey reported that housing starts were down from a year ago. An exception to the slowing trend has been luxury home construction, which remains quite strong. Building materials were reported to be generally available in August. After several months of decline, most builders expect overall construction activity to level off for the remainder of the year. Home sales eased throughout much of the district but remained close to year-ago levels in some cities. The slower sales this year have increased inventories of available housing from the low levels reported in earlier surveys. Mortgage demand remained rather weak in August, with virtually no refinancing activity taking place. Lenders expect this sluggishness to continue in coming months.
Banking
Bankers reported that loans increased and deposits held steady over the past month, boosting loan-deposit ratios. Demand rose for commercial and industrial loans, commercial real estate loans, and home equity loans. Loan demand in other major categories was unchanged. On the deposit side, demand deposits, NOW accounts, money market deposit accounts, and small time deposits all declined. Some rural bankers attributed the deposit declines to increased competition from mutual funds, the availability of funds from alternative sources such as the Federal Home Loan Banks, and long-term demographic shifts. Almost all respondent banks left their prime lending rates and consumer lending rates unchanged during the past month, and almost all expect to hold rates steady in the near term. Lending standards were generally unchanged.
Energy
Energy activity in the district continued to improve in August and early September, as oil and natural gas prices remained high. The count of active oil and gas rigs in the district has increased for six consecutive months and is now the highest since 1993. After easing slightly in July, natural gas prices have resumed their climb upward, pushed by tight supplies. Moreover, the price of West Texas intermediate crude oil rose further in early September.
Agriculture
Despite hot, dry weather, big corn and soybean crops are expected this fall, promising to keep grain prices low. The dry weather has hurt district pasture conditions, limiting the supply of forage. Strong consumer meat demand continues to support livestock prices. The high price of young feeder cattle, however, has trimmed profits for district feedlots and boosted profits for ranchers. District bankers report that farm loan portfolios remain healthy due to strong livestock profits and big government subsidies for grain producers.
Wages and Prices
Labor markets in the Tenth District experienced some relief in August, particularly for skilled manufacturing and construction workers. However, entry-level and retail workers remained difficult to find in most parts of the district. As in the previous survey, most business contacts reported that wage pressures have eased from earlier in the year. Some firms, however, were still offering sizable signing bonuses. Price pressures intensified for many manufacturing materials in August, due largely to increases in oil prices. Builders reported that prices for some construction materials also rose for the first time since the spring. Retail prices edged down at several luxury retailers, but are expected to rise again in the fall. Other retail prices were generally steady.
|
Minneapolis