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The Tenth District economy generally held steady in June and early July, despite weak real estate conditions. Consumer spending remained higher than year-ago levels and was expected to rise over the next three months. Manufacturing activity expanded slightly, but at a slower pace than in previous months. Transportation and high-tech firms reported increased activity. As expected, residential real estate activity contracted sharply in response to the expiration of tax credits. Commercial real estate conditions weakened, and activity was expected to slow in the months ahead. Bankers reported slightly increased loan demand and did not anticipate a change in loan quality over the next six months. Energy production expanded, raising expectations of increased employment and capital spending over the coming months. Agriculture conditions remained positive, and farmland values stayed above year-ago levels. Wage and retail price pressures remained subdued.
Consumer Spending
Consumer spending remained higher than a year ago, and contacts anticipated gains over the next three months. District retailers reported that sales in June and July were flat relative to the previous survey period but remained above year-ago levels. Retailers expected sales to rise over the next three months and a continued downward trend in prices. Auto sales increased in response to higher discounts, and dealers expected strong demand to persist in the coming months. Auto dealers reported continued declines in inventories. Restaurant sales were flat compared to the previous survey, but the average check amount fell. Tourism activity rose over the past month and was expected to remain strong during the summer months. Hotel occupancy rates increased more than anticipated, but contacts expected to give up some of these gains in the coming months.
Manufacturing and Other Business Activity
Growth in manufacturing activity eased slightly in June, while transportation and high-tech firms reported solid growth in sales and activity. Production at manufacturing firms continued to rise, but the pace of growth slowed for the second consecutive month. The volume of new orders, shipments, and finished goods inventories were flat compared to May, but the backlog of orders at manufacturing firms declined. Manufacturing activity continued to improve compared to a year ago, and firms remained optimistic about production and employment over the next six months. Capital spending continued to decrease compared to year-ago levels, and firms expected slightly less investment over the next six months. Transportation firms saw an increase in activity when compared to both the previous period and a year ago. Some firms continued to have difficulty finding qualified drivers. Most transportation firms planned to increase their capital spending the next six to twelve months. The high-tech industry reported an increase in activity over the previous survey period and expected strong growth during the next three months.
Real Estate and Construction
Residential and commercial real estate activity declined since the last survey period. With the expiration of tax credits, residential sales dropped sharply resulting in higher inventories of unsold homes. Residential real estate contacts continued to report that lower-priced homes sold better than higher-priced homes. Over the next three months, real estate agents anticipated slower sales. However, builders reported higher traffic from potential buyers and expected starts to rise slightly the next three months. Despite flat construction supply sales since the previous survey, construction supply contacts also expected sales to increase during the coming months. Refinancing activity increased amid declining interest rates. Commercial real estate contacts reported that conditions weakened after improving slightly in the previous survey, including higher vacancy rates and declining sales, construction, prices and rents. Commercial real estate conditions were expected to worsen over the next three months. Developers reported increasing difficulty accessing credit.
Banking
Bankers reported slightly increased loan demand, stable deposits, and an unchanged outlook for loan quality. Overall, loan demand edged up after holding steady in the previous survey. Demand for consumer installment loans increased. However, demand fell for commercial real estate loans and was little changed for commercial and industrial loans and residential real estate loans. Credit standards on residential real estate loans and consumer installment loans were unchanged, but a few banks tightened standards on their commercial and industrial loans and commercial real estate loans. About the same number of bankers reported an improvement in loan quality, compared to one year ago, as reported a deterioration. Also, for the second straight survey, respondents expected no change in loan quality over the next six months. Deposits were unchanged, consistent with their overall stability since late last year.
Energy
Energy production continued to expand, and firms expected activity to grow further in the coming months. Growth in the number of active drilling rigs slowed relative to strong gains earlier in the year. Crude oil prices were expected to remain unchanged due to a steadying of supply and demand conditions. Firms reported that they planned to increase the workforce the next three months, but some contacts noted difficulty finding qualified workers. However, they did not anticipate having to raise wages in order to attract workers. Capital spending was expected to increase over the next six to twelve months, and several firms mentioned the potential of developing the Niobrara oil shale in northeastern Colorado and eastern Wyoming.
Agriculture
Agricultural conditions remained positive since the last survey period. Ample moisture reduced the need for irrigation, and the corn and soybean crops were reported in generally good or better condition. Wet weather, however, delayed the winter wheat harvest. While many areas expected an abundant wheat crop, there were some reports of hail damage and poor quality yields, especially in Oklahoma. Corn and soybean prices held steady while wheat prices rallied slightly, mainly due to expectations of a smaller global wheat harvest. Livestock operations continued to be profitable with recovering demand for beef and pork. Farmland values remained above year-ago levels. Farm loan demand held steady, and ample funds were available at low interest rates for qualified borrowers.
Wages and Prices
Wage and retail price pressures remained low in June and July. District firms reported a slight uptick in the shortage of qualified labor, but wage pressures stayed at low levels. Retail prices continued to decline compared to both the last survey period and a year ago. Builders and construction supply firms expected prices to remain at current levels over the next three months. Raw material prices at District manufacturers grew during the survey period, but the pace of growth slowed considerably. Meanwhile, transportation companies continued to experience higher input prices. Overall, District contacts planned to keep prices at their current level the next three months.
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Minneapolis