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The Tenth District economy continued to decline in March, but showed some tentative signs of stabilization. Consumer spending and manufacturing activity fell at a slower pace, and residential real estate activity and agriculture were steady. In addition, fewer business contacts than in previous surveys expected further declines in economic activity. By contrast, the commercial real estate sector weakened further, energy activity dropped sharply, and bankers reported lower loan demand and expectations of weakening loan quality. Price pressures eased further, and wage pressures remained low due to weakness in the labor market.
Consumer spending eased slightly in March and expectations remained subdued, but some contacts reported modest improvement. Excluding autos, retail sales were fairly level in March, though activity still remained well below a year ago and expectations were relatively flat. Store managers reported sluggish sales in most categories, particularly electronics, and noted a continued lack of consumer confidence. Store inventories rose slightly from the previous month, but most contacts expected a decrease in the months ahead. Auto sales continued to decline sharply, though more dealers than in previous surveys expected some improvements in future months. Several contacts noted high demand for used cars and for service and parts maintenance. Travel and tourism activity remained sluggish, with several hotel contacts reporting less business travel. Nearly all tourism contacts expected a further slowdown in travel activity. Restaurant traffic edged up slightly from the previous survey, though activity continued to be relatively sluggish.
Manufacturing and Other Services
Manufacturing activity declined at a slower pace in March than in previous surveys. Overall production fell less at both durable and non-durable-goods producing plants. Some plant managers reported a slight upturn in shipments, new orders, and order backlogs, but many firms continued to reduce inventories in response to sluggish demand. Expectations for future factory activity rose marginally, but capital spending and hiring plans remained largely on hold. The majority of contacts reported few difficulties obtaining credit. Transportation services activity was generally sluggish, but contacts continued to express some optimism about future months. Capital spending plans strengthened over the previous month, and one trucking company noted a recent upturn in commercial and residential moving business. High-tech services firms reported mostly stable business conditions, and were generally positive about the months ahead. However, one business noted the lack of access to long-term debt had forced a hold on its capital investment plans.
Real Estate and Construction
Residential real estate activity steadied somewhat in March, while the downturn in commercial real estate activity continued. Home sales rose slightly from the previous survey, and expectations for future sales also improved, though activity remained well below year-ago levels. The increases were attributed to lower mortgage rates and new tax credits related to housing. Real estate agents reported solid demand for lower-priced homes and foreclosed properties. Home inventory levels fell slightly, and were expected to remain stable in the coming months. Mortgage origination loans increased sharply, with home refinances particularly strong. In contrast, residential construction activity slowed further, and several contacts reported especially tight credit conditions for construction loans. Commercial real estate activity continued to deteriorate across the District, with few improvements expected in the near future. Vacancy rates rose further, and the decline in rental rates continued. Most contacts cited continued difficulties obtaining financing for large commercial projects.
Bankers reported a decline in loan demand, an increase in deposits, and a slightly more pessimistic outlook for loan quality since the last survey. The fraction of banks reporting lower overall loan demand was somewhat smaller than in the previous survey. Demand continued to fall for commercial and industrial loans and commercial real estate loans. However, demand for consumer installment loans was little changed, and demand for residential real estate loans increased for the second survey in a row. Some banks reported tighter credit standards, especially on commercial and industrial loans and commercial real estate loans. However, the fraction of banks tightening standards was lower than in previous surveys. Assessments of current loan quality were about the same as in the last survey, but expectations for future loan quality were a little more pessimistic. A substantial fraction of banks reported increases in deposits, and some banks attributed the inflows to a flight to safety.
Energy activity weakened sharply in March. Nearly all contacts reported a decrease in drilling activity and were pessimistic about the months ahead. While oil prices have rebounded somewhat, natural gas prices remained depressed, with no upturn expected in the near future. Several producers noted sharp cuts in their labor force, particularly for field positions, and one producer commented on the increased cost of credit to finance large projects.
District agricultural conditions held steady since the last survey period. While most of the wheat crop in Nebraska remained in good condition, some crop deterioration was reported in dry and windy areas of Kansas and Oklahoma. Recent rain and snow in the southern Plains, however, could relieve some of the stress on the wheat crop by boosting soil moisture levels. District contacts reported little change in crop mix compared to last year. Livestock producers continued to be challenged by low cattle and hog prices and weak export markets. Reduced farm income limited capital spending and carry-over debt remained elevated. Demand for high quality farmland was solid, but sales of marginal farmland dropped sharply.
Wages and Prices
Price pressures eased further, and wage pressures remained limited due to soft labor markets. Manufacturers reported a continued decline in raw materials prices, though slightly more producers than in previous surveys planned to raise selling prices in the future. Overall retail prices edged down from the previous survey, and most contacts expected prices to fall further in coming months. Only a small number of firms reported labor shortages, resulting in minimal wage pressures. Several contacts, particularly in the energy industry, reported considerable reductions in their workforce.