| Skip to content
|
Overview
The Tenth District economy grew at a steady pace in June and July, although the residential real estate sector showed further signs of slowing. Retail sales improved, and the energy sector continued to benefit from high oil and gas prices. Moreover, manufacturing and commercial construction activity remained solid. In the farm economy, expectations of a big fall harvest kept crop prices low. Labor markets became even tighter, but wage pressures did not appear as intense. There were fewer reports of price increases for manufacturing materials than in previous surveys. Prices for construction materials rose slightly, while retail prices held steady.
Retail Sales
Retail sales improved in June and July following some sluggishness in the previous two surveys. Stores across the District also reported that sales were equal to or above year-ago levels. Sales of electronic goods were especially strong, and men's sportswear also sold well. The increase in sales was expected by most managers and served to reduce inventories to more desirable levels. Managers remained optimistic about activity heading into the back-to-school season. Most locations expected to increase inventories during the next few months. Motor vehicle sales were mixed across the district. Sales in metropolitan areas were strong, but dealers in many rural parts of the District reported declines in activity. Higher gasoline prices did not appear to affect demand for luxury cars and SUVs, which continued to sell briskly. The used car market in several large cities has also been quite strong, as expanded job opportunities and extremely low unemployment rates have increased the number of people needing cars for transportation to work. Dealers expect somewhat slower vehicle sales in coming months, due in part to consumer concerns about higher interest rates.
Manufacturing
District factory activity remained solid in June and July. A similar percentage of firms reported high levels of capacity utilization as in the previous survey. Material availability problems were generally small. Some firms, however, continued to experience difficulties obtaining steel products and electronic components and lead times for these materials edged up. A few managers also reported a decline in service due to supplier consolidation. As a result of this consolidation, firms in some industries have banded together into purchasing associations in order to obtain better service and larger price discounts. Inventory levels fell again, due in some cases to increased reliance on Internet procurement, which allows managers to implement more of a "just-in-time" inventory system. Most managers plan to continue trimming inventories in coming months.
Real Estate and Construction
Nonresidential building activity remained solid, but housing activity continued to slow. Homebuilders reported another reduction in housing starts, with activity in some places down as much as 20 percent from last year's record pace. The slowdown appeared to be sharpest for low-end single-family units. Construction of high-end and multifamily dwellings, on the other hand, remained strong in several parts of the District. Expectations of future residential building were rather subdued. In contrast to starts, home sales experienced a modest increase and were slightly above year-ago levels. Despite the increase in sales, inventories of unsold homes continued to rise from the low levels seen earlier in the year. Mortgage demand fell slightly, as refinancing activity has virtually come to a halt. Like builders, lenders expect flat demand for home purchases in coming months. In contrast to housing, most real estate contacts continued to report strength in the nonresidential building market, particularly for offices, hospitals, and retail space. The supply of office space, in particular, is not close to keeping up with demand in some District cities. Builders reported virtually no material availability problems.
Banking
Bankers reported that loans held steady and deposits edged down over the past month, slightly boosting loan-deposit ratios. Demand fell for consumer loans and home mortgage loans but increased for commercial real estate loans. Demand for home equity loans also rose, as mortgage refinancing remained unattractive and consumers sought to consolidate their debts. On the deposit side, NOW accounts and large CDs fell slightly, while other categories were little changed. All respondent banks left their prime lending rates unchanged during the past month, and almost all expect to hold rates steady in the near term. Most banks held their consumer lending rates constant and anticipate no future changes. A few banks tightened lending standards, but most left their lending standards unchanged.
Energy
District energy activity continued to rise in response to high energy prices. The count of active oil and gas rigs was close to a five-year high and is expected to go higher. Both oil and gas prices have receded a bit in recent weeks but remain substantially above year-ago levels. Energy contacts expect natural gas prices to rise considerably in coming months due to supply shortages. Oil prices are expected to be steady to slightly down for the rest of the year.
Agriculture
The District's corn and soybean crops are in good condition, and a big harvest is expected if timely rainfall continues. With big crops likely, grain prices have fallen sharply and promise to remain weak. Low grain prices have pushed down feed costs for livestock producers, and strong meat demand is supporting livestock prices. As a result, most hog producers and cattle ranchers have been earning solid profits. Prices have risen more for feeder cattle than for fed cattle, however, limiting profits for feedlots. Business activity remained sluggish in many of the district's agricultural communities. Prospects of a big harvest, however, have boosted farm equipment sales in some areas.
Wages and Prices
Labor markets in the Tenth District have become even tighter since the last survey, with nearly all contacts reporting some kind of labor shortage. All types of construction workers were reported to be in short supply, in addition to entry-level retail workers, information technology specialists, and skilled factory workers. Despite the tightening in the labor market, fewer contacts reported rising wage pressures than in previous surveys. However, employers reported that benefit costs, especially for health insurance, have risen substantially this year. Price pressures for manufacturing materials lessened from previous surveys, although purchasing managers expect prices for some materials to continue edging up in coming months. Prices of construction materials rose slightly, and builders anticipate further increases. Retail prices held steady, with slight increases expected in the near future.
|
Minneapolis