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The district economy continued to grow moderately last month. Manufacturing activity remained strong, retail sales edged up, and energy activity improved further. The only sign of weakness was a slight slowdown in construction activity. In the farm economy, the condition of the winter wheat crop ranged from average to very good, the outlook for spring crops was excellent, and the recovery in the cattle industry continued. Labor markets remained tight in much of the district, and some companies increased wages for entry-level workers. Prices generally held steady at the retail level while increasing for some construction materials.
Retail Sales
Retailers report sales increased modestly last month and were slightly higher than a year ago. Sales are expected to increase somewhat in the coming months. Retailers have been holding inventories steady and are generally satisfied with current stocks. Automobile dealers report sales were little changed from the previous month and down from a year ago. Sales of light trucks and sport utility vehicles remained particularly strong. Most dealers have been trimming inventories but expect to expand stocks somewhat in the next several months to meet increased sales.
Manufacturing
Manufacturers continued to operate at moderately high levels of capacity last month. Manufacturing materials were generally available, with lead times unchanged. Manufacturers have been trimming their inventories, and some say they plan further reductions because stocks exceed desired levels. A quarterly survey of district manufacturers indicated that production, shipments, and new orders all increased modestly from March to April.
Housing
Builders report housing starts edged down last month and were slightly lower than a year ago. Builders expect construction activity to improve somewhat in coming months due to seasonal factors and stronger demand. Sales of new homes were generally unchanged from both the previous month and a year ago. Most building materials were readily available and delivery times were normal. Mortgage lenders say demand was unchanged last month.
Banking
Bankers report that loans increased during the past month while deposits remained unchanged, boosting loan-deposit ratios slightly. Commercial and industrial loans, home equity loans, and commercial real estate loans increased, while other loan categories were flat. Large CDs and small time deposits rose, outweighing declines in demand deposits and NOW accounts.
Most respondent banks left their prime lending rates unchanged last month, but some expect to raise rates in the near term. Most banks did not change their consumer lending rates and anticipate no future changes. A few banks tightened their lending standards, citing concerns over credit quality.
Energy
District energy activity continued to improve last month and remained somewhat stronger than a year ago. Crude oil and natural gas prices rose in May after falling earlier in the year. The district rig count was up 3 percent to a level 15 percent higher than a year ago.
Agriculture
The district's winter wheat crop is in above-average condition, and this year's harvest will likely be larger than last year's. Frost damage and dry conditions earlier this spring hurt the crop in parts of Colorado, Kansas, and Oklahoma, but yields in those states should still be about average. The wheat crop in the remainder of the district is rated very good. Spring crops in the district are reported to be in excellent condition. Farmers planted more corn and soybeans than normal this spring, and if favorable conditions continue, the district should record another excellent fall harvest.
District cattle feedlots are full. The large numbers of cattle on feed are putting downward pressure on prices for fat cattle. To keep from being caught with large numbers of cattle if prices fall, feedlot operators are marketing cattle at lighter weights. Prices for feeder calves have remained high, leading district ranchers to sell their yearling calves this spring rather than keep them on grass through the summer. Ranchers do not plan to increase their herd sizes by retaining additional replacement heifers this year.
The strong farm economy is benefiting many of the district's rural communities. Bankers reported strong farm equipment and auto sales in the first half of the year. Most other main street businesses are also benefiting from the stronger farm economy, and business conditions are stronger than a year ago.
Wages and Prices
Labor markets remained tight last month in much of the district, with some evidence of wage pressures at the entry level. Employers report qualified entry-level workers were in short supply, and some manufacturers say engineers were hard to find. Computer specialists and skilled construction workers were also in short supply in many markets. A number of companies indicate they raised wages more than normal to attract entry-level workers. There were relatively few reports, however, of wage increases for other types of workers. Prices held steady at the retail level but increased for some construction materials such as lumber. Retailers expect no major price changes in coming months.
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Minneapolis