The Tenth District economy expanded moderately in September with the pace of
growth firming since the last survey period. Consumer spending strengthened
with stronger retail sales and tourism activity. The expansion in labor markets,
energy activity, and commercial real estate activity advanced further. District
manufacturing activity was solid despite expanding at a slower pace and residential
real estate activity continued to soften. Agricultural conditions improved slightly
with recent precipitation. Wage and wholesale price pressures remained contained
and retail price pressures were subdued.
Consumer spending strengthened in September after growing more slowly in August.
District retail contacts reported a rebound in sales and heavier traffic in
retail malls. Sales gains were generally broad-based, but contacts suggested
some weakness in home furnishings and home improvement items. Retail sales were
up from a year ago and retailers expected higher sales in the next three months.
Auto dealers reported slower sales growth as fewer incentives were offered.
High gas mileage vehicles sold well while truck and SUV sales remained slow.
Auto inventories rose in September, but stood at acceptable levels. Auto dealers
expected slower auto sales and rising inventories in the months ahead. Travel
and tourism activity strengthened in September. District hotels reported solid
gains in hotel occupancy rates. Hotel and tourist attraction operators expected
activity to improve going forward.
The expansion in district manufacturing activity slowed in September. Plant
managers indicated that growth in production, shipments, and new orders slowed
since the last survey period, but remained well above year-ago levels. Inventories
edged up from August and suppliers to auto manufacturing plants reported slower
sales. Still, manufacturers remained optimistic about future sales. Supplier
delivery times improved in September. Capital expenditures remained solid as
did expectations for future investment.
Real Estate and Construction
The residential real estate market continued to soften while commercial real
estate activity expanded. Contacts indicated that home starts, traffic of potential
buyers, and home prices were down relative to a year ago. Inventories of existing
homes rose and contacts reported that the time-on-market for homes lengthened,
despite the increased use of concessions to attract buyers. Home sales were
soft in most segments of the housing market, with particular weakness in low
to moderately priced housing markets. Builders expected home starts to decline
further, due in part to normal seasonal slowing. In contrast, commercial real
estate activity expanded. Although commercial building starts fell, vacancies
were down and absorption was up. Commercial real estate contacts expected activity
to remain firm.
Bankers reported that loans increased somewhat since the last survey, while
deposits held steady. Demand for commercial and industrial loans rose slightly,
while demand for other loan categories was generally unchanged. Money market
deposits and CDs were higher than in the prior period. Lending rates and standards
remained basically unchanged. Overall loan quality improved somewhat compared
to the same period a year ago, and respondents expected loan quality to improve
moderately in coming months.
Energy activity continued to expand in the district in September. Oil and gas
drilling rig counts remained above year-ago levels. District contacts expected
the expansion in energy activity to continue, but at a slower pace. The availability
of qualified labor and equipment remained a concern. Demand for gasoline and
oil slowed with the end of the summer driving season. Industry contacts, however,
expected natural gas prices to rise this winter.
Agricultural conditions generally improved across the district since the last
survey in August. Cooler weather and scattered rain helped to improve soil moisture
and pastures conditions, but slowed crop maturation and fall harvest. Elsewhere,
windy conditions forced some producers to delay winter wheat plantings or risk
erosion. Still, producers remained generally optimistic about field conditions
going forward. Despite improved pastures, cattle producers may continue to draw
down herds to help pastures recover from drought.
Labor Markets and Wages
Labor markets continued to expand while wage pressures remained contained. District
hiring announcements continued to outpace layoff announcements. Most contacts
continued to report some type of labor shortage, especially for skilled and
specialized workers, including engineers, experienced sales workers, oil and
gas workers, and manufacturing workers. Some district contacts indicated shortages
of entry level positions. The share of businesses experiencing wage pressures
eased somewhat since the last survey. Most businesses expected wage gains to
be in line with recent wage increases, but some expected that larger wage increases
would be needed to attract and retain specialized workers.
Wholesale price pressures continued to ease and retail price pressures remained
subdued. Fewer manufacturers reported rising raw materials prices and fewer
also expected price increases in the coming months. Nevertheless, prices for
raw materials remained high, especially for materials derived from oil and natural
gas. The share of manufacturers reporting higher finished goods prices held
steady. Looking forward, the share of firms planning output price increases
also held steady. District builders indicated that metals prices continued to
rise in September. Most retail contacts indicated that prices were stable relative
to recent months. Going forward, most retailers expected selling prices to remain
flat or rise only marginally.