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The district economy slowed further in late September and early October. However, the overall level of activity remained solid, at a level similar to a year ago. Retail sales declined but are expected to pick up heading into the holiday season. Manufacturing activity slowed from a strong August, and the construction sector showed signs of improvement following flat growth during the summer. In the farm economy, the fall harvest is on schedule, but big grain crops could continue to hold down crop prices. Labor markets in most of the district remained very tight, and reports of wage pressures were slightly higher than in recent surveys. Retail prices edged down, while prices for some construction and manufacturing materials continued to rise.
Retailers in the district reported a decline in sales, following flat activity in the three previous surveys. Sales of men's business wear were particularly weak, while appliances sold well. Inventory levels continued to expand and are expected to rise further, as stores gear up for the holiday season. Motor vehicle sales remained strong in most parts of the district, particularly for trucks and SUVs. Expectations for future vehicle sales weakened from earlier in the year. Vehicle availability was only a concern for some models of light trucks.
District factory activity slowed after making some progress in August. While most plants were still operating at medium to high capacity, fewer contacts than in the previous survey reported high levels of capacity utilization. Manufacturing materials remained generally available, but lead times increased for steel and some other metals. Concerns about future material availability remained low. Managers were much more satisfied with inventories, and most plan to continue trimming stock levels in coming months.
Building activity improved following several months of decline, but was flat compared with a year ago. Builders expect a typical seasonal downturn in activity heading into the winter months. Material availability problems eased somewhat from previous surveys, but gypsum board and insulation remained scarce in some areas. Home sales declined, and inventories of unsold homes built up in some rural areas. Mortgage demand continued to fall as refinancing activity has slowed substantially with rises in interest rates.
Bankers report that loans increased and deposits held steady last month, raising loan-deposit ratios. Demand increased for commercial and industrial loans, commercial real estate loans, and consumer loans. Demand for home mortgage loans fell. On the deposit side, increases in demand deposits and MMDAs were offset by a decline in large time deposits. A few respondent banks raised their prime lending rates and consumer lending rates last month, but most banks held rates steady. Almost half the banks expect to increase their prime rate and consumer lending rates in the near future. Lending standards were unchanged.
District energy activity continued to improve, as energy prices remained high. The rig count in mid-October was nearly as high as a year ago and 60 percent above the March low, as both oil and gas prices remained well above year-ago levels.
The district's fall harvest is on schedule. Corn and soybean yields in much of the district are better than normal, but cotton yields are well below normal due to dry weather. The big grain crops promise to hold crop prices down in the months ahead. The lower prices, however, have trimmed feed costs and boosted profits for cattle feeders. Despite the bigger profits, cattle ranchers have not begun to enlarge their herds as expected. Low hog prices have forced many of the district's small-scale hog producers out of business, and many remaining producers operate under contractual arrangements with food companies. District bankers report farm loan portfolios are generally stable, but repayment of farm loans may slow unless farm incomes improve. The bankers also report slower business activity in many farm dependent rural communities.
Wages and Prices
The district's weaker economic activity in recent months has not eased labor markets much, since labor force growth in the region has also slowed substantially. Most contacts continued to report difficulties filling positions. Some manufacturers noted an increase in the availability of production workers, but retailers and builders reported continued difficulties in finding sales associates and skilled tradesmen. The number of contacts reporting increased wage pressures was up slightly from the three previous surveys. Retail prices edged down but are expected to inch up as the holidays approach. Prices for some manufacturing materials continued to increase and are expected to rise further in coming months. Prices for construction materials also continued to rise, although not as quickly as in the last six months.