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While still somewhat weak, the Tenth District economy showed distinct signs of improvement in March. Manufacturing activity remained well below year-ago levels but the slump appeared to be ending. Residential real estate activity also strengthened in most of the district, and retail sales remained solid. On the negative side, however, energy activity was still sluggish and commercial real estate remained very soft. In the farm economy, the district's winter wheat crop was in below average condition following a dry winter. District labor markets remained slack, with wage pressures subdued. Retail prices held steady, while prices for some manufacturing and construction materials increased.
Consumer Spending
Retailers reported steady activity across much of the district in March, with sales remaining above year-ago levels at most stores. Home furnishing items continued to sell particularly well across the district, while apparel sales were down in several places. Retailers continue to expect sales to increase in coming months, and have thus been building inventories. Most stores are now satisfied with their stock levels. However, several managers reported they were prepared to begin discounting prices again to move merchandise if sales fail to meet expectations. Tourism activity at mountain resorts in the district continued to hold up relatively well in March. However, advanced bookings for the summer season were slightly lower than a year ago. Motor vehicle sales in the district also held steady in March, although they were somewhat below year-ago levels. Sales of SUVs and light trucks continued to be stronger than for cars. Dealers remained cautiously optimistic that sales would resume increasing in the summer.
Manufacturing
District factory activity showed clear signs of bottoming out in March following a long decline. While production and shipments remained well below year-ago levels, more managers were reporting increases in capacity utilization than in past surveys. In addition, expectations for future activity continued to rise. For the first time since last summer, there were as many firms planning increases in capital expenditures over the next six months as planning decreases. Moreover, most managers have stopped trimming inventories. Manufacturing materials remained generally available, although there were some reports of delays in receiving steel shipments.
Real Estate and Construction
Residential real estate activity improved in most of the district in March, while commercial real estate markets remained in a slump. Except in Colorado, builders reported increased residential construction activity, a trend that is expected to continue. Realtors also reported increased home sales outside of Colorado. In Colorado, inventories of unsold homes remained above year-ago levels but, despite the overall weakness in residential real estate, there were reports of steady demand for entry-level houses in Denver and for luxury homes in resort areas. Mortgage lenders reported an increase in demand for home loans, with most of the activity coming from home purchases rather than refinancing. Mortgage demand is expected to remain strong through the summer. Commercial realtors continued to report weakness in most district office markets. Office vacancy rates appear to have stabilized in recent months, but remain high in many areas, especially suburban Denver. Commercial construction activity has also eased, due in part to tighter lending standards. With absorption still low, most contacts expect the weakness in the office sector to persist.
Banking
Bankers reported that loans remained unchanged and deposits edged up since the last survey, reducing loan-deposit ratios slightly. Demand held steady for all major loan categories. On the deposit side, demand deposits and NOW accounts increased, money market deposit accounts and large CDs remained unchanged, and small time deposits edged down. Respondent banks held their prime lending rates and consumer lending rates steady and do not expect to adjust these rates in the near term. Lending standards outside of commercial construction loans were generally unchanged.
Energy
Energy activity in the district edged down in March, leaving the count of active oil and gas drilling rigs in the region the lowest in two and a half years. However, district oil and gas firms remain optimistic about future activity due in part to recent price increases, and they continue to report new investments in drilling equipment. Wyoming coal producers, on the other hand, expressed some concern about softening prices due to the relatively mild winter.
Agriculture
The district's winter wheat crop was in below average condition after an unusually dry winter. Despite recent rainfall, soil moisture remains inadequate. The dry weather has also hurt pastures and depleted pond water, creating concern for district ranchers going into the grazing season. District bankers expected farmers to make little financial improvement this year with low crop prices and weaker livestock prices. As a result, bankers and their farm borrowers are taking a cautious approach to farm debt. Bankers indicated that small and farm-related businesses in rural areas continue to struggle.
Wages and Prices
District labor markets remained very slack in March. Shortages of workers were reported for only a few occupations, including nurses and most kinds of building tradesmen. Outside of these occupations, firms reported no difficulties in hiring workers and wage pressures were virtually nonexistent. Many firms reported substantial decreases in turnover rates over the past few months, and some said they experienced sizable increases in applications for open positions. Looking ahead, for the first time since last summer more manufacturers expect to add workers than expect to cut them during the next six months. Retail prices were flat in March and are expected to remain steady as long as sales hold up. Prices rose significantly for several manufacturing materials, including steel and petroleum-related products. Many manufacturers expect further price increases for these materials. Prices for several construction materials, including lumber and gypsum wallboard, were also edging higher. Lumber prices are expected to continue rising.
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Minneapolis