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The Tenth District economy expanded solidly in late October and early November. Growth in consumer spending rebounded, and activity in the manufacturing and energy sectors continued to increase. Labor markets and commercial real estate activity also improved further, and agricultural conditions remained positive. Housing activity was largely unchanged. Wage pressures remained modest, but wholesale price pressures persisted and retail price pressures increased moderately.
Growth in consumer spending picked up in late October and early November, and contacts generally expect a solid if unspectacular holiday season. Most retailers, mall managers, and restaurants reported healthy year-over-year increases in sales in late October and early November, following somewhat weaker growth in the previous survey. However, several malls reported traffic was slower than usual due to unseasonably warm weather. Sales of women's apparel were reported as strong by many contacts. Store managers' expectations for holiday sales were generally upbeat, although some contacts expressed concerns about higher energy prices. Most retailers were satisfied with inventory levels heading into the holidays; however, a few were starting holiday promotions earlier than normal in an attempt to boost sales. Most auto dealers reported another decline in vehicle sales in late October and early November, with sales of SUVs said to be especially weak. Most dealers also expect continued slow sales in the months ahead. On the positive side, auto dealers were generally satisfied with inventory levels, which were lean coming out of the summer. Travel and tourism activity was at or above year-ago levels throughout the district. Airport traffic was up in most cities, and several hotels reported increased business due to the relocation of conventions from New Orleans. Tourism contacts generally expect solid activity over the holidays.
District manufacturing activity continued to expand in late October and early November. Many plant managers reported further increases in production, shipments and orders, and factory activity was up solidly from a year ago. Hiring and capital spending at district factories also rebounded after slowing somewhat immediately following the hurricanes. Plant managers generally expect continued solid growth in manufacturing activity in the months ahead. Contacts in the aircraft industry were especially upbeat about future orders. Plant managers reported that several materials remained in short supply due to continued disruptions following the hurricanes. Material availability problems were generally expected to be resolved in the next few months.
Real Estate and Construction
Housing activity in the district was largely unchanged in late October and early November, while commercial real estate activity continued to improve. Builders reported that housing starts were generally flat since the previous survey and similar to year-ago levels. Starts are expected to largely hold steady in the months ahead. Several builders reported difficulties obtaining some materials, including lumber and concrete, but they expect availability problems to diminish in coming months. Some builders also noted sharp increases in lot prices in recent months due to land constraints. Real estate agents reported that home sales were up slightly from the previous survey and from a year ago, although some cities had excess inventories of unsold homes. Most agents expect flat home sales in coming months. Year-over-year home price growth remained moderate in most areas, and realtors expect modest growth in home prices heading forward. Mortgage lenders reported increased demand for new home mortgages, while demand for refinancings continued to decline. Mortgage demand is expected to be largely unchanged in future months. Commercial real estate activity in the district improved further in late October and early November. Vacancy rates edged down in several cities, while sales of office space were up in most cities. Commercial real estate agents generally expect continued improvements in office markets heading forward.
Bankers report that loans and deposits both edged up since the last survey, leaving loan-deposit ratios unchanged. Demand rose slightly for commercial and industrial loans, residential construction loans, home mortgage loans, and commercial real estate loans. Demand for consumer loans and home equity loans was flat. On the deposit side, large CDs and small time and savings deposits increased slightly, while transactions accounts were down somewhat. Other types of accounts held steady. Almost all respondents increased their prime lending rates since the last survey, and most respondents also raised their consumer lending rates. Lending standards were unchanged.
District energy activity continued to expand in late October and early November. The count of active oil and gas drilling rigs in the region increased further and was well above year-ago levels. Contacts in Oklahoma reported that several small independent drillers were reopening older wells, which can be operated profitably with sustained high oil and natural gas prices. Most contacts continued to report that drilling was being constrained by shortages of rigs, equipment, and workers, but firms generally expect further increases in drilling in the months ahead.
Agricultural conditions in the district remained generally positive in late October and early November. Warm and dry weather continued through the first half of November, contributing to favorable conditions for field work and pushing the emergence of winter wheat ahead of normal. The harvesting of major fall crops was ahead of last year's schedule and in line with five-year averages. Contacts expect large harvests even though yields will be off slightly. Conditions for livestock producers remained favorable due to lower grain prices. Incomes for both livestock and crop producers are expected to be strong in 2005, although higher energy costs continue to be a major concern.
Labor Markets and Wages
Labor markets strengthened further in late October and early November, but wage pressures generally remained modest. Hiring announcements were outpacing layoff announcements by a sizable margin up until the reported closing of an auto assembly plant in Oklahoma. A considerable number of call centers plan to add workers, and several large manufacturers in the district also announced workforce expansions. The percentage of contacts experiencing labor shortages was flat compared with the previous survey but up slightly from the summer. Specific types of workers reported to be especially difficult to find included unskilled manufacturing workers, all types of oil and gas workers, retail salespeople and managers, auto technicians, and nurses. The percentage of firms reporting wage pressures was up slightly from the previous survey but largely unchanged from the summer.
Wholesale price pressures remained high in late October and early November, and retail price pressures increased. The share of manufacturers reporting materials price increases remained at record levels. Price increases were reported for a wide variety of inputs, including steel, plastics, and other petroleum-based materials. The share of manufacturers raising output prices also remained very high, and plant managers expect materials prices and output prices to rise still further in the months ahead. Builders reported increased costs for many materials, including lumber, plywood, and drywall, and some contacts expect prices to continue to rise in the months ahead. Local utilities in the district expect residential heating bills this winter to be up by 30 to 40 percent from a year ago, assuming normal winter weather. The share of retail stores reporting higher prices than a year ago was up considerably from the previous survey, but a smaller share of stores plan price increases in the future. Most hotels raised room rates since the last survey and plan further increases in the months ahead.