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The Tenth District economy remained solid in late October and November, but with some signs of slowing. Retail sales continued to rise modestly heading into the holidays, and manufacturing and commercial construction activity held steady. Energy activity continued to benefit from high oil and natural gas prices. The main signs of slowing were declines in motor vehicle sales and residential construction activity. In the farm economy, dry autumn weather hurt the winter wheat crop and limited forage for cattle. District labor markets remained tight, with wage pressures showing some signs of intensifying. Prices for some manufacturing materials rose further. In contrast, retail prices and prices for most building materials were generally stable.
Retail Sales
Retailers reported slight increases in activity in late October and November, continuing the trend of the last several months. Nearly all stores also reported that sales were higher than a year ago. Women's clothing sold particularly well, as did men's casual wear. Sales of cosmetics and appliances were generally weak. Store inventories edged up but are expected to level off in coming months. Sales during the Thanksgiving weekend either met or moderately exceeded expectations in most locations, and managers were cautiously optimistic about the rest of the holiday shopping season. There was some concern, however, about how weaker technology stock prices might affect holiday buying. Motor vehicle sales have slowed considerably and most dealers remain pessimistic about sales in coming months. Some dealers also reported that extensive manufacturer incentives have prevented sales from falling further. Virtually no vehicle inventory problems were reported.
Manufacturing
District factory activity was generally stable in late October and November, with most firms continuing to report high levels of capacity utilization. Some producers of petroleum-based products reported slightly lower levels of capacity utilization than in the previous survey. Several exporters, however, reported that production and sales have held up reasonably well despite the strong dollar. Manufacturing materials remained generally available, with lead times largely unchanged. Managers do not anticipate material availability problems in coming months. Most firms trimmed inventories and expect to continue doing so through the first of the year.
Real Estate and Construction
Residential construction activity turned back downward in late October and November, while commercial building held steady. Housing starts fell in nearly all locations, following a modest rebound in September. Some locations also reported an excess supply of multifamily units. Builders expect residential building activity to remain about the same throughout the winter, after adjusting for normal seasonal variation. Sales of new and existing homes were mixed, with year-over-year gains in some cities offsetting declines in others. Mortgage demand has been weak and is expected to remain flat. Commercial construction activity was largely unchanged from a few months ago. Respondents in a couple of cities warned of possible overbuilding in the office market, but absorption in most cities remained strong enough to keep vacancy rates at low levels. Building materials were generally available, although shortages of gypsum wallboard persisted in some areas of the district.
Banking
Bankers reported that loans and deposits were both flat over the past month, leaving loan-deposit ratios unchanged. Demand eased for residential construction loans but edged up or remained unchanged for other loan categories. On the deposit side, an increase in small time deposits was offset by small declines in demand deposits, NOW accounts, money market deposit accounts, and large CDs. All respondent banks left their prime lending rates unchanged, and almost all banks held their consumer lending rates steady. Contacts also do not expect to adjust these lending rates in the near term. Lending standards were unchanged from the previous month.
Energy
Energy activity continued to benefit from high oil and natural gas prices. The count of active oil and gas rigs in the district edged down but remained near a seven-year high. Natural gas prices have risen dramatically, as the winter heating season began with historically low inventories. Oil prices reached a ten-year high in November. Several contacts in the industry expect high prices to continue for some time due to strong worldwide demand and inadequate exploration and development.
Agriculture
Development of the district's winter wheat crop was hurt by dry autumn weather, which left the crop unusually vulnerable to cold winter temperatures. The dry weather also hurt pastures, limiting forage supplies and discouraging cattle ranchers from expanding their herds. District bankers reported improved profits in the cattle industry, and big government subsidies to crop producers have stabilized farm loan portfolios and farmland values. Bankers expect relatively few repayment problems to surface in farm loan portfolios during credit reviews this winter. Most recent sales of farmland have been to farmers expanding their businesses and to nonfarm investors interested in scenic areas.
Wages and Prices
Labor markets in the Tenth District remained tight in late October and November. As before, the greatest labor shortages were for information technology, entry-level retail, and manufacturing production workers. The proportion of business contacts reporting increased wage pressures continued to edge up from earlier in the year. Benefit costs have also increased and are expected to continue rising in 2001. Retail prices remained steady in October and November and are expected to stay unchanged through the end of the year. Upward price pressures continued for some manufacturing materials, including rubber and other petroleum-based products. These increases are expected to persist in coming months. Some builders reported further declines in lumber prices, but prices for most construction materials were unchanged and are expected to remain steady.
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Minneapolis