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The Tenth District economy remained sluggish in March. Retail sales were flat, manufacturing activity slowed further, and commercial construction was unchanged from previous surveys. On the positive side, energy activity continued to boom, and residential construction edged higher following months of weakness. In the farm economy, recent rainfall improved prospects for the winter wheat crop while delaying the planting of spring crops. District labor markets showed additional signs of easing, although they remained generally tight. The pace of wage increases also slowed. Retail prices held steady, while prices for some manufacturing materials continued to rise.
Retail Sales
Retail sales in March were largely unchanged from February and remained below year-ago levels in some parts of the district. Sales of high-ticket items were generally weak, reportedly due in part to declining equity markets. Most other items moved well, but not enough to boost total sales. Inventory levels edged higher and expectations of future sales softened from previous surveys. Motor vehicle sales improved in most places after slowing during the winter. Most dealers were satisfied with their current inventories of unsold cars. Optimism continued to build about summer vehicle sales, as dealers expect a further release of pent-up demand from consumers. There was, however, some concern about the effect of rising gasoline prices on sales of SUVs and minivans.
Manufacturing
District factory activity continued to weaken in March, as more firms were operating at a low level of capacity utilization than in the recent past. Lead times edged down with the decrease in production. Some manufacturing material problems surfaced, but most inputs remained generally available. Most plants were trimming inventories and plan to continue reducing stock levels into the summer. There were also reports that many firms were cutting back on large capital spending projects this year.
Real Estate and Construction
Residential construction activity rose slightly in March, while commercial building was flat. Housing starts in most of the district edged up from February but were largely unchanged from a year ago. Most builders expect residential construction activity to edge up further in coming months. In some markets, however, sales of new and existing homes remained weak and inventories of unsold homes continued to build. Mortgage demand remained strong, primarily due to heavy refinancing activity. Lenders expect this refinancing activity to continue into the summer. Commercial construction activity was flat. The pace of commercial sales and leasing activity fell somewhat, pushing vacancy rates up slightly.
Banking
Bankers report that loans and deposits both increased since the last survey, leaving loan-deposit ratios little changed. Demand eased for consumer loans but increased for most other loan categories, especially commercial real estate loans. On the deposit side, all major categories rose. Some bankers attributed the increase in deposits to consumer nervousness about the stock market. All respondent banks reduced their prime lending rates, and most also decreased their consumer lending rates. Most respondents said they did not expect to adjust these lending rates further in the near term. A few banks tightened lending standards, citing the slowing economy.
Energy
Energy activity in the Tenth District continued to expand in March. The district's count of active oil and gas rigs rose to the highest level in ten years, as energy prices remained high by historical standards. Interest in shallow coal-bed methane remained strong, and district sources reported more investment in deep oil and gas development than in previous surveys. Several contacts continued to express concern about shortages of drilling equipment and workers.
Agriculture
The condition of the district's winter wheat crop varied widely. In some areas, the crop remained in poor condition following a dry autumn and harsh winter. Elsewhere, recent rainfall improved prospects for the wheat crop while delaying the planting of corn, soybeans, and other spring crops. District bankers continued to watch farm loan portfolios closely, although few have tightened farm lending standards. Bankers expect low crop prices and high fuel and fertilizer prices to limit incomes for crop producers this year. Strong livestock prices, however, should boost incomes for cattle and hog producers.
Wages and Prices
District labor markets continued to show signs of easing in March but remained generally tight. Workers appear to be nervous about the prospect of future layoffs and district sources report some workers have been putting in longer hours in an attempt to enhance their job security. Most manufacturing firms now report few difficulties finding workers. On the other hand, construction and entry-level retail workers remain in short supply in some places. Skilled labor has also been hard to find in the booming energy-producing areas of the district. Overall wage pressures continued to ease, and many companies have put wage and benefit increases on hold. Retail prices held steady in March, and some retailers expect a slight decline in prices in coming months. Prices for manufacturing materials continued to rise, due largely to transport cost increases. Most purchasing managers expect material prices to stabilize during the summer. Building material prices remained largely unchanged.
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Minneapolis