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The Tenth District economy continued to expand at a moderate pace in late January and
February. Consumer spending grew moderately, residential construction edged up, and commercial real estate activity improved further. On the negative side, growth in manufacturing activity eased, labor markets softened somewhat, and dry weather raised concerns in the agricultural sector. Wage pressures remained low, while wholesale price pressures eased slightly and retail price pressures
Consumer spending continued to grow moderately in late January and February. Most retailers, mall managers, and restaurants reported that sales were above plan and higher than a year ago. Several contacts also noted that traffic was higher than normal for the period due to unseasonably warm weather. Store managers were generally satisfied with inventory levels, and nearly all of them expect sales to increase in the months ahead. Auto dealers reported that sales during the period from late January through February were generally flat and below year-ago levels. Several contacts noted that sales of SUVs had begun to pick up after stalling during the past several months. Dealers generally expect a modest increase in sales heading into spring. Inventory levels
were said to be satisfactory at most dealerships. Travel and tourism contacts reported moderate
growth in activity. Traffic was slightly higher than a year ago at most airports across the district, and hotel occupancy rates were above year-ago levels in most areas. Visits to ski resorts in Colorado remained strong, while visits to New Mexico resorts continued to be depressed by inadequate snowfall. Contacts expect that tourism activity will improve slightly in most parts of the district in the months ahead.
Manufacturing activity in the district continued to expand in late January
and February, although at a somewhat slower rate than in recent surveys. Many plant managers reported increases in production and new orders, but the increases were not as widespread as in the previous survey period. Growth in capital spending also slowed somewhat from the strong pace in
the second half of 2005. On the other hand, a higher fraction of respondents than in the previous survey expect production and new orders to increase in the months ahead. Contacts also reported that most materials remained fairly easy to obtain, although several noted that there might be slight delays in acquiring steel in coming months.
Real Estate and Construction
Residential construction edged up from already high levels
in late January and February, and commercial real estate activity showed further signs of
improvement. Most home builders reported that starts increased modestly since the previous survey. However, some contacts attributed this rise partly to favorable weather, and builders in several metro areas said that they expect construction to decline somewhat in the months ahead. While construction materials were generally reported to be available, several contacts noted some difficulties acquiring cement. Overall, most contacts do not foresee significant problems obtaining materials in the coming months. Residential real estate agents said home sales were mostly unchanged from the previous survey, and they expect sales to generally remain flat in coming months. Many contacts noted that sales of high-end housing were soft. In addition, inventories of unsold homes were well above year-ago levels in several markets. Home price appreciation remained subdued in most markets, and real estate agents expect moderate growth in home prices in coming months. Mortgage lenders reported a slight increase in home purchase loans since the previous survey but said that demand was still lower than a year earlier. Demand for refinancings declined and was considerably lower than in the same period last year. Commercial real estate activity in the district continued to improve in late January and February. Vacancy rates for office, industrial, and retail space all held steady or edged down
since the previous survey, and rents were higher than a year ago in most areas. Contacts expect commercial real estate markets to improve further heading forward.
Bankers reported that both loans and deposits held steady since the last survey, leaving loan-deposit ratios unchanged. Demand rose slightly for agricultural loans and fell somewhat for home equity loans and home mortgages. Demand for other major loan categories was generally unchanged. On the deposit side, small increases in transactions accounts were offset by a slight decline in large CDs. Many respondents increased their prime lending rates since the last survey, and a few also raised their consumer lending rates. Lending standards were unchanged.
District energy activity expanded solidly during late January and February. The
count of active oil and gas drilling rigs in the region increased and remained well above year-ago levels. Many contacts continued to report that shortages of equipment and workers were constraining drilling activity. In addition, a temporary reduction in local refining capacity was reported to have depressed the price of crude oil produced in Wyoming. Firms throughout the district expect further increases in drilling in the months ahead.
Agricultural conditions remained mostly unchanged in late January and February, as drought conditions persisted across much of the district. The lack of moisture has been
of particular concern to cattle producers, especially in Oklahoma. Contacts report that if the dry weather continues through the summer months, many producers will be forced to sell off herds and
fall back on cash reserves. Nevertheless, conditions could improve dramatically if moisture arrives in the next several weeks. The high cost of fertilizer remains a concern for crop producers. Due to the high price of wheat, however, wheat producers are not expected to adopt less fertilizer-intensive practices during spring fieldwork.
Labor Markets and Wages
Labor markets softened somewhat relative to recent surveys,
and wage pressures remained modest. Hiring announcements fell short of layoff announcements in late January and February, after outpacing layoff announcements by a considerable margin in the previous survey period. Several large meatpacking plants announced that they were closing or cutting shifts, and a number of auto parts manufacturers also ceased production. On the other hand, a number of pharmaceutical manufacturers announced plans to add workers. A slightly smaller percentage of contacts reported labor shortages than in the previous survey. Among the workers reported to be in short supply were truck drivers, auto technicians, and geologists. The fraction of firms reporting above-normal wage increases remained low by historical standards and was nearly unchanged from
the previous survey.
Wholesale price pressures eased somewhat in late January and February, but retail price pressures edged up. The percentage of manufacturers reporting increases in materials prices declined modestly from the previous survey, returning to levels seen last summer. The share of plant managers expecting material prices to increase in coming months also declined, although the share remained high by historical standards. The fraction of manufacturers raising selling prices was roughly unchanged from the previous survey, while the fraction expecting to raise selling prices in the near future declined somewhat. Builders indicated that the cost of cement continued to rise modestly, but they did not expect any large increase in materials prices in the months ahead. The share of retailers reporting higher prices than a year ago increased slightly from the previous survey. In addition, a larger percentage of retail stores than in the previous survey plan price increases in the future.