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The Tenth District economy expanded solidly in March and early April. Retail sales and tourism increased, factory activity rose briskly, and the energy sector continued to strengthen. In addition, labor markets firmed slightly, and residential real estate activity increased. Wage increases remained moderate at most firms, but price pressures persisted at the wholesale level and showed scattered signs of emerging at the retail level.
Consumer spending in the district rose solidly in March and early April. Most retailers and mall managers reported sizable increases in sales from a year ago. Product categories characterized as especially strong included apparel, appliances, and jewelry. On the other hand, sales of garden and patio items and shoes were said to be weaker than normal. Some stores increased inventories due to the solid increase in sales, but most stores held inventories steady and plan few changes in the months ahead. Virtually all store managers anticipated strong sales through early summer, although some were worried that higher gasoline prices could cut into sales. Motor vehicle sales improved somewhat from the previous survey but generally remained slightly weaker than a year ago. A number of dealers continued to note some weakening in truck and SUV sales, which they attributed to higher gasoline prices. Nevertheless, most dealers were optimistic that overall vehicle sales will continue to post modest improvements. Travel and tourism activity continued to increase in March and early April. Airport traffic was up from year-ago levels across the district, and Rocky Mountain resorts reported strong increases in activity from last year.
District manufacturing activity expanded strongly in March and early April. Overall, plant managers reported sizable increases in production, shipments, and orders compared with the previous survey, and many firms continued to add employees. In addition, manufacturers generally reported solid growth in capital investment. On the negative side, a few large firms in the region announced sizable layoffs since the previous survey. Heading forward, plant managers remain optimistic about future activity, though slightly less so than in the recent past. Most plant managers noted few difficulties obtaining materials, though some reported delays in shipments of steel and aluminum.
Real Estate and Construction
Residential real estate activity increased in March and early April, while commercial real estate activity remained flat. Most builders reported solid growth in single-family housing starts since the previous survey. The increase was in contrast to the softening in homebuilding reported in recent surveys. Builders generally expect steady construction activity in the months ahead. Real estate agents reported slight improvements in home sales from both the previous survey and a year ago. Activity in some cities was reported to have been boosted by sales to out-of-state investors. Most real estate agents anticipate slight increases in home sales in coming months. Mortgage lenders reported another small rise in mortgage demand, despite further decreases in refinancing activity. Virtually all mortgage lenders remain optimistic about future demand for home purchase loans. Commercial real estate activity in the district was generally unchanged from the previous survey and still relatively weak overall. As in the previous survey, however, many commercial real estate agents anticipate some improvement in vacancy and absorption rates in the months ahead.
Bankers reported that loans increased more than deposits since the last meeting, boosting loan-deposit ratios somewhat. Demand increased for commercial and industrial loans and commercial real estate loans and was unchanged for other categories. On the deposit side, all types of accounts edged up. Almost all respondents increased their prime lending rates and consumer lending rates since the last survey. A few banks eased their lending standards, citing competition from other banks.
District energy activity continued to rise in March and early April. The count of active oil and gas drilling rigs in the region increased moderately from the previous survey and was well above year-ago levels. A number of energy firms said drilling activity was slightly less than desired, due to persistent shortages of labor and equipment. One company reported that waiting time for drilling rigs had increased to a minimum of nine months. Most contacts expect continued modest expansion of drilling in the months ahead, reflecting increased confidence that oil and gas prices will remain high.
Agricultural conditions in the district were generally favorable in March and early April. Most crop producers were upbeat about the status of the winter wheat crop and reported good to excellent field conditions for spring-planted crops. In the northern and western areas of the district, however, drought remained a pressing issue for ranchers, who reported that pasture conditions were somewhat unfavorable heading into spring. Many farmers also noted some concern about rising fuel costs. Farmland values in the district continued to appreciate rapidly.
Labor Markets, Wages, and Prices
Wage pressures remained moderate despite firmer labor markets, but many manufacturers continued to raise output prices and more stores than in recent surveys raised retail prices. The number of firms reporting worker shortages continued to increase. Workers reported to be in especially short supply included truck drivers, computer technicians, and both entry-level and experienced workers in the retail, manufacturing, and energy sectors. Despite the tightening in labor markets, the number of firms reporting wage increases remained similar to recent surveys. Also, due to sizable job cuts at a few large companies, layoff announcements in the district exceeded hiring announcements for the first time in over a year. Most retailers continued to report flat selling prices. However, a larger number of stores and restaurants than in recent surveys said they had raised prices due to increased costs. Retailers generally expect little change in prices in the months ahead, though several home improvement and furniture stores anticipate raising prices further. Some builders noted increased prices for materials, and nearly all manufacturers said input prices were rising. As in previous surveys, a sizable share of manufacturers raised output prices and plan to continue doing so in the months ahead. A few firms, however, have been less successful in passing on cost increases than they anticipated and have had to withdraw previous price increases.