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The Tenth District economy remained generally sluggish in late October and early November, though not all signs were negative. Manufacturing activity continued to languish, commercial real estate activity weakened, and energy activity slowed further. However, auto sales surged in most of the district due to consumer incentives, and retail sales and housing activity rebounded somewhat from the dropoff following the terrorist attacks. In the farm economy, a dry autumn limited forage supplies and raised concerns about soil moisture going into winter. District labor markets continued to ease, as further job cuts took effect. Wage pressures also remained subdued. Price discounting at many stores held retail prices in check, and prices for finished factory goods edged lower due to weak demand. Prices for most construction and manufacturing materials were stable.
Retail sales improved somewhat in late October and early November but remained close to year-ago levels in most areas. Large discount stores continued to enjoy the strongest sales. Most retailers were cautiously optimistic heading into the holiday shopping season, saying they expected to match or slightly exceed last year's sales numbers. Home improvement stores were especially upbeat. Some retailers, however, reported they were aggressively managing inventories to avoid being stuck with excess stocks in January. Motor vehicle sales were very strong across the district due to attractive financing packages. However, dealers expect overall vehicle sales to weaken considerably once the consumer incentives come to an end. Some rental car companies reported scaling back new car purchases and selling off some of their used vehicles due to cutbacks in air travel.
District factory activity was flat in late October and early November after declining substantially over the summer. A similar percentage of firms as in the previous survey reported lower production, shipments, and new orders compared with a year ago. However, more manufacturers were shedding workers than in recent months, as further layoffs were announced at a wide variety of firms. Food processing remained an exception to the slowing trend, with output and employment generally holding steady. Expectations for future activity remained subdued, and firms continued to hold back on capital spending projects. Most firms continued to trim inventories and expect to trim further in coming months. No significant shortages of materials were reported, and supplier delivery times declined for some products.
Real Estate and Construction
Residential construction activity rebounded somewhat from the dropoff following the terrorist attacks, while commercial real estate markets weakened further. Compared to a year ago, both home sales and housing starts were up solidly in Oklahoma and New Mexico. Housing activity in most of the rest of the district remained below year-ago levels, but somewhat less so than in the previous survey. Sales of high-end homes remained particularly weak throughout the district. Commercial real estate activity continued to decline, as white-collar layoffs and uncertainty about the economic outlook further reduced the demand for office space. High office vacancy rates were of particular concern in areas of suburban Denver hard hit by high-tech layoffs. New office construction has also slowed in most cities since the summer.
Bankers report that loans decreased and deposits held steady since the last survey, reducing loan-deposit ratios. Demand fell for all loan categories except home mortgages, which benefited from strong refinancing activity. On the deposit side, increases in demand deposits, NOW accounts, and money market deposit accounts were offset by declines in large CDs. Almost all respondent banks reduced their prime lending rates and consumer lending rates since the last survey. Lending standards were unchanged.
Energy activity in the district fell considerably in late October and early November. By mid-November, the region's count of active oil and gas drilling rigs was down roughly a third from the 14-year high established in July. The slowdown in drilling activity is now evident in all oil and gas producing areas of the district, after starting out in marginal fields only. District sources report, however, that they expect the declines in activity to be short-lived, with energy prices stabilizing in 2002.
District corn and soybean yields were average or better, except in southern parts of the district where dry summer weather hurt the crops. Rain came in time for planting of the district's winter wheat crop, but a dry autumn has raised some concerns about soil moisture going into winter. Dry conditions have also limited forage supplies in some areas, encouraging ranchers in those areas to send more cattle to market despite weaker prices this fall. Otherwise, cattle producers are holding off on marketings until prices recover. District bankers indicate that small business activity in rural areas is slower than a year ago.
Wages and Prices
District labor markets continued to ease in late October and early November, as previously announced layoffs went into effect and firms cut back on new hiring. The rate of new layoff announcements subsided somewhat from September but remained much higher than earlier in the year. Employers were having few problems hiring most kinds of workers, although shortages persisted for nurses and some skilled building trades. In a change from the previous survey, retailers now expect to hire a similar number of seasonal workers as in previous years. Wage pressures remained subdued, and many firms reported they would not be giving holiday bonuses this year. Due to rising health care costs, some firms were trimming medical and other benefits. Retail prices remained basically flat, although some stores continued to lower prices to clear excess inventory. Most store managers expect similar prices through the remainder of the year. In the manufacturing sector, materials prices were steady while finished-good prices continued to edge down, a trend that most firms expect to continue. Builders in some areas reported substantial declines in lumber prices, but prices for most other construction materials were largely unchanged and are expected to remain flat in coming months.