| Skip to content
|
Eleventh District economic activity remained fairly strong in August and early September. Most manufacturing and business service firms said they were operating at high levels, but reports were mixed, and there were some signs of softness. Retail sales continued to be weaker than in the first half of the year, but sales had strengthened slightly for some stores since the last report. Construction and real estate activity remained at high levels, and bankers said loan demand continued to be strong. Oil field activity continues to increase rapidly. Agricultural conditions remain very difficult; hot, dry weather has destroyed crops, impeded livestock production, raised costs, and delayed land preparation for fall planting.
Prices
Most price reports were unchanged or lower than six weeks ago, with the exception of energy prices, which were higher. Labor markets remained tight in many industries. Prices were unchanged or lower for most manufactured products, such as metals, cement, concrete, wood, and lumber. Cement and lumber prices were being pushed down by increased imports. Brick producers, however, have increased their selling prices by 4 to 6 percent to pass along a portion of higher natural gas costs, but their orders are booked in advance so they do not expect to start collecting this increase until December. Food producers reported that broccoli continues to be in oversupply, and its price is falling. However, prices are up for a range of produce coming from Mexico. Office rental rates remained unchanged but industrial rates are up slightly, partly because increased construction costs (concrete, labor, land, and steel) are pushing through to lease rates, according to respondents. Retailers reported no change in selling prices, but some said that markdowns are greater than a year ago. Most retailers do not see upward cost pressures on the horizon. Auto dealers said special financing and factory incentives are helping offset higher interest rates. Strong demand and very low inventories pushed up energy prices. West Texas Intermediate crude prices rose considerably over the past six weeks, and inventories reached the lowest levels in over two decades. Inventory levels for oil products also are low, helping push up prices. For example, heating oil inventories are over 40 percent below the levels of last year. Natural gas prices continued at extremely high levels, with inventories at about 15 percent below last year. Petrochemical producers report that margins are being squeezed because large inventories are preventing them from passing higher natural gas costs on to selling prices. For ethylene, the higher inventories are partly the result of new capacity coming on line and partly due to slower growth in demand. Inventories have built up significantly for polyvinyl chloride.
Manufacturing
Manufacturing activity continued to show signs of softness, although most industries are still operating at high levels. Demand has been mixed for construction-related materials, such as concrete, cement, and metals. Cement sales have been strong for oil wells and highway construction but have softened in some areas, partly because hot temperatures limited the time that workers could be outside. Brick sales rebounded some after slowing in June and July; while sales are considered "excellent" they remain below the levels of the first half of the year. Sales of fabricated metals were also mixed, with some contacts reporting increased construction-related demand while others reported some softening in sales. Primary metals producers reported a slight slowing over the past few weeks. Demand for paper and food products was unchanged. Electronic equipment manufacturers say demand has flattened at high levels. Growth in personal computer sales remained "good" but has slowed slightly, according to contacts. There was more caution about the outlook for the next twelve months because planned capacity growth and a recent moderate increase in inventories for some types of semiconductors may lead to an acceleration in price declines for semiconductors next year. Demand for lumber and wood products continued to be strong, and transportation manufacturers reported solid growth in demand. Apparel producers said sales growth was up, and some have increased inventories in anticipation of stronger sales. Refineries were operating at high levels of production and reported strong demand and profit margins. Demand for petrochemicals softened slightly, and some plants have been shut down, such as those producing chlorine and methanol.
Services
Demand for business services remained strong, but there continue to be signs of softening. Temporary firms reported generally robust demand, although the strength of demand varied between firms; some contacts reported weakness from construction and manufacturing industries, while other firms continued to see strength from manufacturing. Legal firms also reported continued strong demand but, again, responses had some areas of softness. Transportation firms said demand was still strong, with airline, trucking and rail all reporting continued strength or stronger activity.
Retail Sales
Retail sales continued to grow at a weaker pace than in the first half of the year, according to contacts, but there were signs that sales growth was no longer decelerating. Generally, discount stores reported better sales and more optimism than department stores, although apparel sales were weak at most stores. Contacts did not report problems with inventory, even for those reporting sales declines. Auto sales rebounded in mid-August after flat sales in June and July.
Financial Services
Loan demand continued to be strong, while deposit growth and lending activity remained stable. Deposit growth remains a constraint on loan availability. Auto lending remained the fastest growing category and real estate lending the slowest. There were no concerns about credit quality, although a few respondents mentioned that there is still enough liquidity available to drive competition between institutions and push down margins.
Construction and Real Estate
Construction and real estate activity remained at high levels. Residential markets and homebuilding were strong. Nonresidential markets were also strong, particularly in the major metropolitan areas. Construction of all types of properties was up significantly according to contacts, who said that businesses are rushing to fill any vacant buildings. Demand was cited as particularly strong from "dot-coms." Some analysts report that fears of overbuilding have vanished, while others are still concerned about the Dallas area office and retail markets. Real estate investors said there was still some difficulty obtaining financing, but financing is generally available at slightly increased rates. Despite tremendous activity in the single-family market, new apartment construction in the Dallas/Fort Worth area has dropped sharply.
Energy
Drilling activity continued to increase rapidly, with the U.S. rig count surging over 1,000. Gas-directed drilling still accounts for over 80 percent of U.S. drilling. Offshore activity remained strong, and the rates charged for rigs were rising quickly. International activity was also rising quickly but remained well under the levels of the1997-98 peak. Weak international drilling has allowed U.S. exploration to rise faster than had been expected, but shortages of people and equipment are limiting further growth in drilling activity.
Agriculture
Hot, dry conditions continued to deplete soil moisture, ravage crops, and cause delays in land preparation for fall planting. The Texas cotton crop is being called a disaster; 1 million acres of the usual 6.3 million planted has been abandoned and more is being lost rapidly. The loss of the cotton crop is expected to affect gins, and other small businesses. Pastures are very dry, and livestock producers are giving supplemental feed, hauling water to livestock, and culling herds. Many municipalities remained under strict water rationing, and in some rural locations, water was being hauled for home use.
|
Kansas City