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The District economy expanded solidly in late February and March. Consumer spending rebounded in March after severe weather limited February sales. Factory production rose sharply, allowing manufacturers to rebuild inventories and fulfill a surge in new orders. Residential construction remained weak, and commercial construction rose modestly. Strong commodity prices boosted profits at energy and agricultural enterprises. District bankers reported weaker loan demand, higher deposits and improvements in loan quality. Despite tighter labor markets, especially for skilled workers, District contacts did not expect to raise wages in order to hire new workers. More manufacturers and distributors expected to pass through higher raw material and fuel costs to finished goods prices, and more retailers expected to raise selling prices in the coming months.
Consumer spending picked up following weather-reduced sales in the last survey period. After firming in late February and March, retailers expected sales to rise in the next three months. Store managers noted an uptick in sales of apparel and decorative items. One jewelry store, however, noted that high gasoline prices were cutting disposable incomes and trimming sales. After slowing in the last survey, auto dealers reported robust sales, particularly for used cars, fuel efficient vehicles, and SUVs. Dealers were optimistic that sales would rebound further. Restaurant operators reported stronger sales despite a continued decline in the average check amount. Tourism activity edged up, and vacation destinations were hiring for the summer. Colorado resorts reported the number of skiers this season exceeded year-ago levels. Some District hoteliers raised room rates in response to higher occupancy rates.
Manufacturing and Other Business Activity
District manufacturing activity expanded rapidly and business activity for high-tech service and transportation firms improved in late February and March. Factory managers reported a surge in production and shipments at both durable and non-durable goods plants. New orders jumped in March, boosting order backlogs as firms replenished finished goods inventories. Raw material inventories rose with some reports of stockpiling to meet anticipated demand and to protect against further price increases. Expectations for future factory orders, production, and shipments remained positive. Some manufacturers were hiring workers, and others expanded the average work week. After softening in the last survey period, sales rose at high-tech service and transportation firms with further improvements expected. Transportation companies struggled to find qualified drivers, and some high-tech firms had difficulty filling specialized positions, such as software developers. With brisk demand, factories and high-tech service firms ramped up capital spending and planned additional hiring.
Real Estate and Construction
Residential real estate activity remained slow with subdued growth prospects, while commercial real estate activity stabilized with expectations for improvement. Home building edged down since the last survey period, and construction supply sales were below expectations. Even with a seasonal upturn in residential home sales, the inventory of unsold homes grew substantially as more homes were placed on the market and real estate agents anticipated further home price declines. Driven by less demand for refinancing, mortgage loan activity plummeted, and builders noted the mortgage loan approval process was taking longer. After falling in the last survey period, commercial construction activity picked up modestly and was expected to hold steady over the next three months. District commercial real estate contacts reported an uptick in sales with stable prices and rents. Office and multifamily property leasing was particularly strong. Vacancy rates remained elevated but were expected to move lower as absorption rates gradually improved.
In the recent survey period, bankers reported weaker loan demand, but also rising deposits and improvements in loan quality. Overall loan demand decreased as demand for commercial and industrial, residential real estate, consumer installment, and commercial real estate loans declined. For the fifth straight survey, credit standards remained unchanged in all major loan categories. Deposits increased further in the recent survey period. Bankers also reported improvements in loan quality compared to a year ago, and they expected further improvements over the next six months.
Agricultural growing conditions worsened in late February and March, but farm income and farmland values strengthened. Winter wheat crop conditions deteriorated further as drought conditions in the southern Plains intensified. While farmers are expected to plant more acres to corn and soybeans this spring, crop prices continued to rise as robust food and bio-fuel demand was expected to strain global supplies. Livestock prices strengthened with rising demand and stronger exports, preserving profits despite higher feed costs. Producers continued to pay off loans, shrinking loan demand. Lenders, however, expected a modest rebound in demand for farm operating loans before spring planting and indicated ample funds were available for qualified borrowers. Farmland prices rose further with strong crop prices and a limited number of farms for sale.
District energy activity rose since the last survey period with plans for further expansion in the coming months. District contacts reported increased drilling activity, with exploration shifting away from natural gas towards crude oil. While many energy companies were hiring, some indicated that a lack of qualified labor and limited availability of equipment and services could constrain future drilling activity. Natural gas prices held steady at the close of the winter heating season but were expected to fall as inventory levels were considered sufficient. Crude oil prices rose sharply in late February and March, and contacts felt that political and economic instability in some producer nations would keep prices high for the near future. Ethanol profits held steady as rising ethanol prices offset higher costs of corn inputs. The Bureau of Land Management announced plans to conduct competitive lease sales of coal land in the Powder River Basin that will provide additional production for Wyoming's coal industry.
Wages and Prices
Wages generally held steady even with expanded hiring, and more firms planned to increase selling prices, especially in industries where input prices have surged. Of the companies that added staff, most were not offering higher salaries to attract applicants. With the exception of highly competitive or specialized positions, wage pressures were expected to remain contained. Many District manufacturers reported another jump in raw materials prices, and some companies had already raised finished goods prices with more firms planning to do so in the coming months. Several construction suppliers and transportation companies reported fuel and delivery surcharges were common, and higher input costs were often being passed through to customer prices. Some restaurants increased menu prices in reaction to higher food costs, and some hotels raised room rates. District retailers also expected an uptick in selling prices with stronger consumer demand.