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The Tenth District economy continued to experience moderate growth in October
and early November. Consumer spending strengthened despite slightly weaker auto
sales, and labor markets continued to expand. Commercial real estate activity
also increased further, while manufacturing grew modestly. Energy activity fell
slightly but was still high by historical standards, and agricultural conditions
were generally favorable. Residential real estate activity continued to decline.
Wage pressures were generally moderate, while price pressures eased slightly.
Consumer Spending
Consumer spending increased solidly in October and early November, despite a
slight easing in auto sales. The share of retail stores reporting increased
sales from the previous survey continued to rise following a slowdown in the
summer, and recent sales were higher than expected at many stores. Gains were
reported across a variety of market segments, with sales of apparel particularly
strong. On the other hand, sales of home furnishings remained relatively weak.
Contacts generally expected a solid holiday sales season. Auto dealers reported
a modest decline in sales from the previous survey, which pushed inventories
above desired levels at many dealerships. However, vehicle sales remained above
year-ago levels and contacts were generally optimistic about the future. Travel
and tourism activity remained strong in October and early November. District
hotels continued to report high occupancy rates, and airport traffic was solid.
Most hotel and tourist attraction operators expected high levels of activity
to persist through the end of the year.
Manufacturing
Manufacturing activity in the District expanded modestly in October and early
November. Plant managers continued to report slower growth in production, shipments,
and new orders than earlier in the year, and order backlogs and finished goods
inventories fell for the first time in over a year. Producers of automotive,
residential construction, and agricultural equipment reported especially slow
sales. On the other hand, manufacturers who supply equipment to the energy,
railroad, aircraft, commercial office, and high-tech industries reported strong
demand. Plant managers expressed less optimism about near-term output than in
previous surveys, and one contact reported a reduction in productivity due to
limited skills and motivation among recently-added employees. However, factory
activity was still well above year-ago levels, and capital spending plans remained
solid.
Real Estate and Construction
Residential real estate activity decreased in October and early November, while
commercial real estate activity strengthened further. Builders indicated that
home starts continued to drop and were below year-ago levels. Further easing
in home construction is expected in the months ahead. Residential real estate
agents reported continued declines in home sales, and additional decreases are
anticipated. Inventories of existing homes were still well above year-ago levels
but largely unchanged from the previous survey. Home inventories were generally
expected to begin falling in the months ahead, with the slowdown in construction.
Home prices were steady in most cities and still well up from a year ago in
Albuquerque and Oklahoma City. Many contacts in Colorado, however, reported
moderate price declines and expected further easing in the future. Commercial
real estate activity continued to improve. Sales and absorption of office space
increased in most cities, and vacancy rates were lower than a year ago throughout
the District. As a result, office prices and rents increased further. Most commercial
real estate agents anticipated continued strengthening in the months ahead,
although a few contacts were concerned about potential over-building of single-story
suburban commercial space.
Banking
Bankers reported that loans increased somewhat since the last survey, while
deposits held steady. Demand for commercial and industrial loans rose, while
demand for residential mortgage loans edged down. On the deposit side, interest
bearing deposits such as CDs and money market deposits were slightly higher
than in the prior period, while demand deposits were lower. Lending rates and
lending standards were basically unchanged.
Energy
Energy activity declined moderately in October and early November but remained
strong by historical standards. The count of active oil and gas drilling rigs
in the region fell slightly compared with the previous survey but was still
well above year-ago levels. The recent decline was concentrated in the Rocky
Mountain area, where contacts reported the cost to drill, equip, and produce
wells was becoming prohibitive. One contact also noted that many exploration
companies had moved their offshore drilling rigs in the Gulf of Mexico to other
parts of the world due to difficulties in obtaining hurricane insurance. Most
contacts anticipated steady drilling activity going forward, as energy prices
remained relatively high.
Agriculture
Agricultural conditions remained generally favorable in October and early November
despite a lack of moisture across much of the District. The corn and soybean
harvest was nearly complete, and winter wheat emergence was progressing normally.
The unseasonably warm and dry weather aided harvest activities but continued
to deplete soil moisture in many vulnerable parts of the District. Higher market
prices benefited producers of wheat and corn. Livestock producers, however,
faced higher feed costs combined with weak pasture conditions.
Labor Markets and Wages
Labor markets continued to expand in the District, while wage pressures remained
moderate. Hiring announcements continued to outpace layoff announcements in
the region, and several contacts noted increases in newspaper and radio job
advertisements. The majority of businesses reported some type of labor shortage,
especially for skilled and specialized workers, including engineers, oil field
workers, accountants, welders, sales people, and truck drivers. Given the overall
shortage of workers, one contact lowered language standards for new employees.
Several contacts said more firms were hiring workers away from other companies,
resulting in higher wage expectations. Still, the overall share of businesses
experiencing wage pressures remained steady.
Prices
Price pressures eased somewhat in October and early November. The share of manufacturers
reporting increased materials costs continued to fall, and the share of factories
raising finished goods prices also dropped slightly. Builders reported metal
prices remained high, but prices for some other construction materials have
moderated due to both lower demand and lower transportation costs. More manufacturers
than in previous surveys expected prices to rise in the coming months, and builders
said any increase in fuel costs would lead to price hikes. Most retail contacts
reported flat selling prices and expected little change in prices in the months
ahead. However, several restaurants in Colorado planned to raise menu prices
to cover expected increases in labor costs resulting from the passage of a new
minimum wage law.
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Minneapolis