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The Tenth District economy held steady in March and early April, although there was some increased evidence of price pressures. Retail sales were largely unchanged, manufacturing activity remained strong, and construction activity continued at a solid pace. Activity in the energy sector was also stable after improving during much of the past year. In the farm economy, the winter wheat crop was generally in good condition. Labor markets remained very tight, with wage pressures slightly higher than in the recent past. Price increases for manufacturing materials were more pervasive than in previous months. Retail prices also continued to edge up, as did prices for certain construction materials.
Retail sales were flat in March and early April, and largely unchanged from a year ago. Several managers attributed the lack of growth to a late Easter season, and expectations for summer retail activity remained favorable. E-commerce activity continued to build sales for some retailers in the district. On the negative side, some high-end stores reported that sales have been hurt by recent stock market volatility. Purchases of home furnishings remained strong, while men's clothing continued to move slowly. Store inventories crept up due to the flat sales but most managers remained satisfied with current stock levels. Motor vehicle sales improved as expected, as the truck and SUV market segment rebounded from a slowdown in the winter months. Dealers continued to express optimism regarding future prospects, and virtually no vehicle inventory problems were reported.
District factory activity remained strong, due in part to the continued improvement of export markets. Most plants reported high levels of capacity utilization. Manufacturing materials remained generally available, although some managers reported difficulties obtaining steel products. Lead times were unchanged. There were increased reports of dissatisfaction with inventory levels, however, and many plants intend to trim stock in coming months.
Housing starts were flat in March but still relatively high by historical standards. Builders were cautiously optimistic heading into the summer, despite rising interest rates and the application of growth controls in some areas. Material availability concerns have eased in recent months, although some builders reported persistent shortages of lumber and insulation. Home sales picked up in March after slowing in previous months. Despite the slow turnover in the housing market prior to March, inventories of unsold homes remained quite low in many portions of the district. Home prices throughout most of the district continued to rise faster than in the nation as a whole. Mortgage demand picked up in March and early April but remained lower than a year ago, with little refinancing activity taking place.
Bankers report that loans increased somewhat more than deposits over the past month, boosting loan-deposit ratios slightly. Demand fell for home mortgage loans but increased for commercial and industrial loans, commercial real estate loans, and construction loans. On the deposit side, demand deposits, MMDAs, large CDs, and small time deposits all edged up. Almost all respondent banks increased their prime rate in the past month, and most raised their consumer lending rates as well. Lending standards were generally unchanged.
District energy activity was unchanged in March and early April, as producers remained cautious due to changing oil prices. The price of West Texas intermediate crude oil was almost 25 percent below its March peak by mid-April, but 50 percent above year-ago prices. Despite little change in recent months, the count of active oil and gas drilling rigs in the region was still 80 percent higher than a year ago, and contacts in some energy-dependent areas noted the turnaround was helping their local economies. Natural gas prices have continued to rise into the spring and are expected to rise further throughout the year, due to small gas inventories.
The district's winter wheat crop was generally in good condition, but timely rainfall will be needed during the growing season to ensure development of the crop. Despite unusually dry weather in much of the district, planting of spring crops has been proceeding on schedule. District bankers expect continued low crop prices to hurt farm incomes this year. As a result, many banks are keeping a close watch on their farm loans, even though farm loan portfolios are generally in good condition. Bankers indicate farm lending standards have not been tightened.
Wages and Prices
Labor markets in most of the Tenth District remained very tight, with reports of labor shortages similar to the recent past. Entry-level workers continued to be very difficult to find, along with welders, plumbers, computer specialists, casino employees, and administrative workers. Retailers and builders, in particular, continued to express disappointment with the pool of potential workers. There was some increase in wage pressures in the manufacturing sector, where some labor unions have made use of the persistent shortage of qualified trades workers in recent contract negotiations. The continued expansion of call centers in the district also has reportedly placed additional pressure on wages for entry-level positions in some places. Prices increased for most manufacturing materials in March and early April, especially for steel, plastic, and other petroleum-based products. Further increases are anticipated. Retail prices also continued to edge up, with similar increases expected in coming months. Builders reported slight price increases for some construction materials, such as insulation, gypsum wallboard, and PVC pipe. Small increases in the prices for these materials are also expected in the near future.