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The Tenth District economy expanded modestly from mid-October to mid-November, but with some mixed signals across industries. Consumer spending strengthened overall, and energy and agricultural activity remained strong. The pace of growth of manufacturing activity was somewhat sluggish, but plant managers were generally optimistic about the future. Residential real estate activity weakened further, while commercial real estate activity was solid. Bankers reported softer loan demand and tightened credit standards. Wage pressures increased, although the pace of hiring moderated. Price pressures were generally modest, with stable retail prices but slightly higher prices in manufacturing.
Consumer spending strengthened since the previous survey. After easing in the last survey period, sales at retail stores recovered, with inventories remaining relatively stable. Sales of apparel and electronics were relatively strong, while home furnishings were weak. Automobile sales continued to decline, with especially weak demand for large vans, trucks and SUVs, but relatively strong sales of fuel efficient and smaller cars. Following strong travel activity in September, tourist visits moderated in line with normal seasonal patterns. Still, most contacts in the hotel industry reported higher activity compared to expectations. Average daily hotel room rates were up in October and hotel occupancy rates remained strong. Restaurant sales were up slightly since the last survey period, and contacts anticipated strong activity in the next three months.
Manufacturing activity grew modestly since the last survey period, and firms remained generally optimistic about the future. After easing slightly in September, production edged higher in October. The volume of shipments also increased compared to the previous survey period. On the other hand, new orders and orders for exports edged down, suggesting some near-term sluggishness. Employment also edged down, and factories continued to reduce inventories of both materials and finished goods. Capital spending remained relatively strong, however, and plant managers reported positive expectations about activity six months out, with production and employment expected to improve and the rate of pullback of inventories expected to moderate.
Real Estate and Construction
Residential real estate activity declined further, while commercial real estate activity remained solid. Home sales weakened in most areas and many residential contacts reported negative expectations about near-term activity. Demand for higher-priced homes was especially weak. Home prices fell slightly and inventories of unsold homes rose in most major markets. However, home inventories eased a bit in the Denver metro area market, and some energy-producing areas registered home price appreciation. Commercial real estate sales activity remained solid, with little change in office vacancy rates and absorption rates. The overall pace of commercial construction slowed, except in the District's energy-producing regions, where activity remained robust. Several District contacts reported weakness in industries that supply materials and equipment to construction firms. Office rents remained higher than year-ago levels and were expected to continue to increase.
Bankers reported weaker loan demand, tighter credit standards, and little change in deposits since the last survey. Demand for residential real estate loans and commercial and industrial loans again fell moderately. Demand also declined slightly for commercial real estate loans and consumer installment loans. Overall loan quality was stable, and respondents expect little or no change in loan quality over the next six months. Some banks reported a further tightening of credit standards for commercial and residential real estate loans, although there were fewer such reports than in the previous survey. Bank deposits held steady, as increases in money market deposit accounts were offset by declines in CDs.
District energy activity remained robust. Drilling was particularly strong in the energy-producing regions of Colorado and in Oklahoma. Energy contacts reported the availability of equipment and services as their top constraint. Many respondents reported labor shortages, particularly for skilled and professional workers, but most indicated that availability of labor was not a limiting factor in drilling activity. Most energy firms surveyed expected to see robust drilling activity in the next three months. However, some companies recently reduced their budgets for international operations due to higher drilling costs associated with appreciation of foreign currencies, which have cut into their profits given the pricing of oil in U.S. dollars.
Agricultural conditions remained favorable. The fall harvest was almost complete and winter wheat emergence was progressing normally. Dry weather aided harvest progress, but reduced soil moisture levels and eroded pasture conditions, especially in Oklahoma, where some livestock were placed on supplemental feed. Strong foreign and domestic demand for agricultural commodities helped support crop prices. Above-average corn and soybean yields coupled with strong crop prices and rising exports were boosting farm income, despite rising input costs. High feed costs were trimming livestock profits. Farm credit conditions strengthened as loan repayment rates remained high and the number of requests for loan renewals and extensions eased further.
Labor Markets and Wages
District labor markets remained tight since the previous survey, although the pace of new job growth continued to slow. Hiring announcements outpaced planned layoffs, with significant hiring reported by firms in manufacturing and health care industries. Reports of labor shortages were most notable in energy-producing areas of the District, although District energy firms seemed less concerned about finding workers than firms in other industries. District contacts in the retail and hospitality industries experienced particular difficulty hiring and retaining staff. In response to continuing labor shortages, wage pressures were higher than in previous surveys.
Price pressures in the District generally remained modest. Retail prices were stable, with most retailers expecting no change in prices in the next three months. Restaurants anticipated raising menu prices, but said food costs had moderated since the previous survey. Builders also reported some easing in the price of raw materials. The share of manufacturers reporting higher raw material prices edged up slightly. After steadying in the last survey, manufacturing selling prices also increased slightly. Nevertheless, a much smaller fraction of manufacturers increased selling prices than reported higher raw materials costs. The share of manufacturing respondents expecting future increases in the price for raw materials remained high, but did not change from the previous month.