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The Tenth District economy expanded moderately in the period from late November to early January. Consumer spending and manufacturing activity continued to rise at a solid pace, and labor markets showed further firming. Commercial real estate activity improved slightly, while residential construction held steady at high levels. Energy activity also remained strong, but dry weather caused problems in the agricultural sector. Price pressures were largely unchanged but higher than in the summer, while wage pressures remained low.
Consumer Spending
Consumer spending grew moderately during the holiday season. Retailers, mall managers, and restaurants reported that sales were higher than a year ago, although several contacts noted sales did not meet their expectations. Sales of jewelry and electronics were reported to be strong by many contacts, while women's apparel sales were said to be weak at some stores. Most store managers were pleased with inventory levels and expect solid sales in the months ahead. Auto dealers reported that sales during the period from late November to early January were generally flat and remained well below year-ago levels. Sales of large trucks and SUVs continued to be characterized as particularly slow, and most contacts expect overall sales to remain sluggish in coming months. For the most part, dealers were satisfied with their current level of inventory. Travel and tourism contacts reported that activity was generally above year-ago levels. Traffic was higher than a year ago at most airports across the district, and many hotels reported higher occupancy rates than during the same period last year. Most Colorado ski resorts reported having a strong holiday season, while visits to resorts in New Mexico were below average due to a lack of snow. Tourist activity is expected to remain solid in most parts of the district in the months ahead.
Manufacturing
Manufacturing activity in the district expanded solidly in the period from late November to early January. Plant managers generally reported increases in production and orders from the previous survey. Capital spending also remained strong, and factory activity is expected to continue to grow in the months ahead. Contacts reported that some materials, such as organic chemicals and certain types of steel, continued to be difficult to obtain in the aftermath of the hurricanes. However, most purchasing agents are optimistic that these availability problems will be resolved in the near future.
Real Estate and Construction
Residential construction remained strong in the period from late November to early January, and commercial real estate activity showed further signs of improvement. Home builders reported that starts were generally unchanged since the previous survey and well above year-ago levels. Residential construction is expected to remain strong in most areas in the months ahead. Several builders reported difficulties obtaining some materials and said availability may continue to be a concern in the near future. Residential real estate agents said that home sales were flat or down slightly from the previous survey, but most agents expect home sales to pick up slightly in coming months. Inventories of unsold homes were said to be high in several markets. Year-over-year home price growth remained modest in most of the district, although a few areas did experience significant appreciation during the past year. For the most part, real estate agents expect moderate growth in home prices heading forward. Mortgage lenders reported a decline in demand for both home purchases and refinancings. Lenders expect demand for home purchases to rebound somewhat in the months ahead, but refinancings are expected to remain soft. Commercial real estate activity in the district improved slightly since the last survey. Office vacancy rates either held steady or edged down. In addition a higher fraction of contacts than in the previous survey expected office markets to improve in the months ahead.
Banking
Bankers reported that both loans and deposits edged up since the last survey, leaving loan-deposit ratios unchanged. Demand rose slightly for commercial and industrial loans and commercial real estate loans, while demand fell somewhat for consumer loans and home mortgages. Demand for home equity loans and residential construction loans was flat. On the deposit side, transactions accounts and large CDs increased slightly, while other types of accounts held steady. Nearly all respondents increased their prime lending rates since the last survey, and most respondents also raised their consumer lending rates. Lending standards were unchanged.
Energy
District energy activity remained strong during the period from late November to early January. The count of active oil and gas drilling rigs held steady in the region and remained well above year-ago levels. Many contacts continued to report that shortages of rigs, equipment, and workers were constraining drilling activity. Contacts in Oklahoma did not expect the wildfires in that state to have much of an impact on exploration and production. Firms throughout the district expect to increase drilling heading into spring.
Agriculture
Agricultural conditions across the district deteriorated somewhat during the period from late November to early January. Dry weather across much of the district eroded some of the protective snow cover from the winter wheat crop and put pastures under severe stress. Recently, wildfires have exacerbated adverse pasture conditions and taken a toll on hay supplies in Oklahoma. With dry weather expected to continue through the winter, contacts predict that many affected producers will draw down herds in the coming weeks and months. High fuel and fertilizer costs and lower crop prices are also a concern heading forward.
Labor Markets and Wages
Labor markets continued to firm in the period from late November to early January, but wage pressures remained modest. There were considerably more hiring announcements than layoff announcements in the district since the previous survey. A number of large retail stores announced plans to expand distribution centers in the district, and several engineering firms also plan to add workers. The percentage of contacts reporting labor shortages edged down from the previous survey. However, several types of workers were said to be difficult to find, including truck drivers, auto mechanics, oil and gas workers and unskilled manufacturing workers. The percentage of firms reporting above-normal wage increases was relatively low and unchanged from the previous survey.
Prices
Price pressures were little changed from the previous survey but remained higher than in the summer. The percentage of manufacturers reporting increases in materials prices eased somewhat, and several contacts reported that the price of petroleum-based inputs had come down after increasing sharply during the fall. However, both the share of manufacturers paying higher input prices and the share charging higher output prices remained very high by historical standards. A substantial number of plant managers continued to expect raw material prices and output prices to rise further in the months ahead. Builders indicated that the cost of materials, including lumber and concrete, continued to rise, and they do not expect these prices to ease for some time. The share of retail stores reporting higher prices than a year ago edged down from the previous survey but remained higher than in the summer. In addition, a larger percentage of retail stores than in the last survey plan price increases in the future.
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Minneapolis