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The Tenth District economy showed some signs of strengthening in late January
and February, despite widespread uncertainty among businesses and consumers.
Retail sales posted slight gains, manufacturing activity improved, and energy
activity picked up. In addition, residential real estate activity continued
at a strong pace. On the negative side, auto sales were weak and commercial
real estate remained in a slump. In the farm economy, many ranchers and farmers
continued to suffer from the effects of drought. Wage and price pressures remained
largely subdued across the District.
Retail sales in the District improved slightly in late January and February
after a sluggish holiday season. Sales were above year-ago levels at most stores
and flat or only slightly lower elsewhere. Many retailers attributed the recent
gains to heavy discounting. Among product categories, apparel and electronics
sold particularly well, while sales of some types of home furnishings were weak.
Most managers were optimistic about future activity after solid Valentine's
Day sales and expect some inventory building leading up to the Easter season.
Motor vehicle sales were flat after declining at the end of last year but were
only slightly below year-ago levels in most areas. Compared with contacts in
other industries, auto dealers appeared to be more adversely affected by uncertainty
over a possible war with Iraq. Still, most dealers expect solid sales by summer.
In the tourism industry, activity at Rocky Mountain ski resorts remained solid
after record numbers of visits during the holidays.
District manufacturing activity improved slightly in late January and February
after slipping in December. Production, shipments, and new orders at District
firms rose back above year-ago levels, and many firms reported small increases
in capacity utilization rates. However, new hiring and capital spending remained
weak, and inventories of raw materials fell. Firms appeared somewhat apprehensive
about activity in the immediate future, but their optimism about production
activity later in the year was quite high. Although manufacturing employment
is also expected to pick up by the summer, capital spending is not expected
to change much from current modest levels.
Real Estate and Construction
Residential real estate activity in the District remained strong in late January
and February, although commercial real estate activity weakened further. Single-family
housing starts throughout much of the District rose from already high levels.
Most of this strengthening continued to be for lower priced homes, but there
were also reports of increased construction of midrange homes in some areas.
High-end home building, on the other hand, largely remained in a slump. Most
builders expect home construction to remain solid in coming months, although
builders in some drought-stricken areas were concerned about the effects of
new water restrictions on permit applications. Home sales across the District
were also solid, though reports were not as uniformly strong for housing starts.
In the months ahead, most realtors expect sales to continue at the recent pace.
Mortgage demand remained strong throughout much of the District, as refinancing
activity continued at high levels. Nearly all recent refinancings have been
used to reduce monthly payments-a contrast from previous surveys, when a sizable
portion of refinancing activity was for the purpose of taking out cash. Lenders
generally expect mortgage demand to stay solid and to possibly increase further
in the spring. Commercial real estate activity remained weak across the District,
with some markets experiencing even further deterioration. Office vacancy rates
rose again in Denver, and commercial construction activity fell in nearly all
markets. Absorption and prices of office space were down slightly in most areas,
and many landlords were offering rent concessions to keep or attract tenants.
Commercial realtors generally do not expect a turnaround in activity any time
Bankers report that loans and deposits both held steady since the last survey,
leaving loan-deposit ratios unchanged. Demand increased for home mortgage loans
but edged down for consumer loans. Demand for other loan categories was largely
unchanged. On the deposit side, small increases in NOW accounts and money market
deposit accounts were offset by a slight decline in large CDs. All respondent
banks left their prime lending rates unchanged since the last survey, and most
banks also held their consumer lending rates steady. Lending standards were
District energy activity expanded in late January and February in response to
the rise in energy prices that began in mid-December. The count of active oil
and gas drilling rigs in the region has risen more than 30 percent since the
beginning of the year and is now well above the previous peak reached last summer.
Some District contacts expect further increases in natural gas drilling in the
Rocky Mountains in coming months, as new pipelines to areas east and to California
open in the spring and summer.
Much of the District's farm economy continues to face drought conditions. The
region's winter wheat crop has deteriorated since the previous survey, and timely
rains will be needed to help develop the crop and renew pastures. Despite the
drought, supplies of forage and feedstuffs have been adequate, but ranchers
in some areas have been forced to pay a premium. Livestock prices have moved
higher in recent months, improving profitability in the industry. Overall, District
bankers report few significant problems with their farm loan portfolios. However,
some highly leveraged borrowers will need to carry over or restructure their
Wages and Prices
Wage and price pressures remained generally subdued across the District. Labor
markets were still very slack, with little evidence of rising wages. Managers
reported few problems finding workers, although some retailers and manufacturers
expressed difficulties retaining quality hourly employees. The pace of layoff
announcements continued to decline from recent peaks last fall. Some retail
prices eased due to post-holiday discounting, although jewelry prices edged
up due to recent increases in the price of gold. Retailers generally expect
little change in prices in the near future. Prices for construction materials
were basically flat, but some builders expect lumber and gypsum wallboard prices
to increase in coming months. Manufacturers continued to report rising prices
of petroleum-based products, and several firms also reported surcharges from
suppliers due to increased transportation and insurance costs. At the same time,
many manufacturers continued to have difficulties passing cost increases through