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Growth in the Tenth District economy was modest in late July and August. Consumer spending increased slightly from the previous period, and high-tech and transportation firms reported moderate growth. Energy activity continued to expand solidly, and agricultural conditions improved with higher crop prices. Manufacturing production was flat, and factory orders declined slightly. The downturn in commercial real estate eased somewhat, while residential real estate markets weakened further. Bankers reported steady loan demand and an unchanged outlook for loan quality. Business contacts were moderately optimistic about future sales, but few planned to change employment or capital spending levels in the months ahead. Retail prices were largely unchanged from the previous survey, and wage pressures in most industries remained limited due to soft labor markets.
Consumer spending rose modestly from the previous survey, and contacts expected further growth in the months ahead. Retail sales edged higher and were above year-ago levels at a majority of stores and malls. Purchases of energy-saving appliances and clearance items were reported as strong at several stores, while sales of luxury items such as jewelry and dining room sets were generally characterized as weak. Store inventories rose somewhat, but most contacts were satisfied with current stock levels. Auto sales also increased slightly from the previous period, and nearly all dealers were optimistic about future sales. Auto inventories continued to decline, and some dealers were concerned about meeting expected demand as a result. Restaurant sales rose solidly from the previous period, and travel and tourism activity continued to improve. Several resort contacts in Colorado anticipated a considerable rebound for the upcoming ski season, following weakness last winter.
Manufacturing and Other Business Activity
Manufacturing activity slowed in late July and August, while other business activity continued to expand. Factory production was flat compared to previous months, while shipments and new orders weakened. A producer of chemicals said distributors were only placing orders for product as needed and were unwilling to bring in inventory due to high levels of economic uncertainty. Growth in transportation services moderated slightly from previous surveys but remained solid, and a major supplier of diesel fuel reported continued solid sales. Most high-tech services firms reported strong growth in sales, although a few contacts noted softened demand. Business firms' expectations for future sales eased somewhat from the previous period but remained positive. Capital spending plans for the rest of the year remained essentially flat, with most firms citing economic uncertainty as the primary reason.
Real Estate and Construction
Residential real estate activity dropped sharply in late July and August, but the downturn in commercial real estate activity lessened somewhat. Housing starts declined, with several builders noting continued financing difficulties. Expectations for future homebuilding remained weak, although one Colorado contact believed a floor seemed to be forming in that state. Residential construction supply firms also reported a drop in sales. Home sales plummeted from the previous survey, especially for higher-priced homes, and home inventories rose across the District. Real estate agents blamed the steep drop in home sales on expired tax credits and increased customer uncertainty, and most expected little improvement in the near future. Mortgage lenders reported that overall mortgage demand improved slightly from last month, primarily due to a continued rise in refinancing loans. The downturn in commercial real estate stabilized somewhat in late July and August, but most contacts expected little improvement in coming months. Vacancy rates and leasing activity were flat compared to the previous survey, while construction fell further. Office prices and rents also continued to decline. Many commercial real estate contacts cited continued financing difficulties and high economic uncertainty among customers.
Bankers reported steady loan demand, stable deposits, and an unchanged outlook for loan quality. Overall loan demand was little changed after edging up in the previous survey. Demand was also stable in all major loan categories. As in previous surveys, a few banks tightened standards on their commercial real estate loans. However, credit standards on other types of loans were unchanged. Slightly more bankers reported an improvement in loan quality from one year ago than reported deterioration. Also, for the third straight survey, respondents expected no change in loan quality over the next six months. Deposits were flat, continuing the pattern since late last year.
Energy activity expanded further in late July and August. Virtually all contacts reported an increase in drilling activity, especially for oil, and were optimistic about the months ahead. Crude oil prices remained relatively profitable, and firms drilling for liquids in western Oklahoma were reported as operating at full capacity. However, several producers expressed concerns about low natural gas prices and potentially negative implications of proposed energy legislation. Natural gas prices eased in August, and most producers did not expect sizable increases in prices until well into 2011, due to ample supply and average demand.
Agricultural conditions improved since the last survey period. The winter wheat harvest finished with above average yields. The majority of the corn and soybean crops were rated in good or better condition, though with isolated reports of heat stress, storm damage, and insect infestation. Crop prices rose on prospects of lower global grain supplies and Russia's ban on grain exports, boosting farm income expectations. Livestock prices generally held steady but higher feed costs narrowed profit margins. Farmland values rose further on strong demand from farm and non-farm buyers and a limited supply of land for sale during the growing season. However, the prospect of higher capital gains taxes in 2011 has prompted some farm owners to consider selling their farms before year-end. Agricultural credit conditions generally held steady.
Wages and Prices
Consumer prices were generally unchanged from the previous survey, and wage pressures in most industries remained subdued. Several manufacturers reported continued increases in materials prices, but only a few planned to raise finished goods prices. Construction supply firms reported declines in selling prices, which they generally expected to continue. The downward trend in overall retail prices in recent surveys flattened out slightly, and most contacts expected steady prices heading forward. Services firms reported no change in the prices charged to customers. Wage pressures were still contained in most industries, with labor markets remaining soft. However, some energy firms, auto dealers, and transportation firms reported a slight uptick in wage pressures due to difficulties finding qualified workers. Longer-term hiring announcements continued to rise, but near-term hiring plans generally remained modest.