|Skip to content
The Tenth District economy expanded moderately during March, and District contacts expected economic conditions to improve further in coming months. Warmer weather conditions led to increased retail traffic and supported a modest rebound in consumer spending, generating some optimism among District contacts. Manufacturing and transportation activity continued their steady rebound, resulting in a few new hires. District housing activity rose and contacts anticipated further improvements in coming months. In contrast, commercial construction activity continued to wane. Energy activity expanded further, but natural gas production was expected to ease with slower summer demand. Agricultural conditions remained solid as livestock profits improved and strong crop profitability boosted planting expectations this spring. Wage pressures remained muted and retail prices held steady, but some manufacturers were considering raising selling prices due to higher raw material costs.
Consumer spending rebounded in March as customer traffic improved with warmer weather. Retailers reported higher than expected sales and were optimistic that business activity would continue to recover. Apparel items sold well, and demand for lower-priced durable goods rose. After months of declines, auto dealers reported steady sales in March and were hopeful that increased showroom traffic would spur purchases. Mid-size cars and SUVs were in greatest demand. Restaurants reported more diners but less spending per check, resulting in flat sales. Travel and tourism activity edged up and was expected to strengthen further approaching vacation season. District hotel owners reported higher average room rates and increased occupancy.
Manufacturing and Other Business Activity
Manufacturing and transportation activity expanded solidly since the last survey period. Manufacturing production improved to near year-ago levels as slightly slower growth at non-durable goods plants was offset by stronger durable goods production. A moderate rise in shipments and exports reduced inventories and the backlog of orders increased slightly. Producer expectations for future factory activity improved with sustained growth in new order volumes. Employment levels held steady during the survey period, but more manufacturers planned to increase payrolls over the next six months. Capital spending plans, however, remained largely on hold. After rebounding in the last survey period, sales activity in the transportation sector rose further, but firms were concerned about rising fuel costs. Some trucking companies were hiring qualified drivers. The high-tech industry reported a decline in demand for commercial consulting services as clients cut costs. However, an increase in projects to retro-fit existing facilities to maximize efficiency was noted.
Real Estate and Construction
Residential real estate activity strengthened in March, while commercial real estate activity weakened further. Residential builders reported an upswing in building starts after the harsh winter. Home sales and buyer traffic moved higher, though sales prices fell slightly with a rise in existing home inventories. The home buyer's tax credit continued to support the starter home market, but District contacts expected slower sales after the incentive program expires. Sales of higher priced homes remained sluggish. Mortgage lenders reported an increase in home purchase loans while loan refinancing volumes declined. Construction supply firms anticipated stronger sales for new construction materials as well as higher consumer demand for home improvement supplies. In contrast, commercial real estate activity remained well below year-ago levels. Contacts also noted that few new construction projects had qualified for financing due to continued tight credit conditions. Vacancy rates edged higher, rents fell further, and sales were expected to remain sluggish. Leasing concessions were common as landlords tried to retain current tenants and attract new ones. Some distressed commercial properties were being put on the market and more were expected to follow.
Bankers reported lower loan demand, stable deposits, and an unchanged outlook for loan quality. Overall loan demand declined at a slightly faster pace than in the previous survey. Demand for commercial and industrial loans and commercial real estate loans fell moderately. Demand also declined somewhat for residential real estate loans and consumer installment loans. A few banks tightened credit standards on commercial real estate loans, but credit standards for other loan categories were generally unchanged. Somewhat fewer banks than in the previous survey reported lower quality than a year ago. As in the previous survey, however, about a third of respondents expected loan quality to decline over the next six months. Deposits continued to show little change overall. Several respondents said that some of their depositors were shifting funds to alternative investments such as stocks and bonds in search of higher yields.
Energy activity expanded during the survey period, and additional modest gains were expected in the coming months. After rising in March, the number of active rigs in the District approached year-ago levels. Several firms planned to hire additional staff, primarily engineers and skilled labor. Crude oil prices were expected to rise due to a seasonal uptick in demand and improvement in the world economy. Natural gas prices, however, were expected to decline with excess supply and lower summer demand. Some contacts noted that the expansion in drilling activity could be constrained by the availability of labor, equipment, supplies, and financing. A Wyoming producer also noted difficulty obtaining drilling permits and a decline in land lease sales which could also hinder future development. District coal production increased in March, but remained below year-ago levels. Ethanol profit margins have fallen below capital costs and biodiesel production remains stalled after the loss of a federal tax credit eliminated profits.
Agricultural conditions improved since the last survey period. Livestock prices strengthened in March boosting profitability, especially for cattle producers, and prices were expected to rise further with smaller supplies. Crop prices edged down in March with the prospects of increased plantings and bumper crops. The winter wheat crop was reported in generally good condition. District plantings of corn and soybeans were expected to increase this year, most notably in Kansas where winter wheat plantings declined. Soil moisture levels were more than adequate and contacts were concerned that excessively wet fields could delay spring planting again this year. Lenders reported ample funds were available to satisfy rising demand for farm operating loans in preparation for spring planting. Cropland values remained solid with limited sales activity.
Wages and Prices
Wages held steady since the last survey period, and some factories considered raising selling prices in coming months as raw materials prices rose further. Contacts reported little wage pressure in District labor markets, and most companies hiring new workers were not offering higher salaries to attract qualified applicants. Input prices rose in March and were expected to rise further in coming months. District manufacturers reported additional increases in prices paid for raw materials. Builders and construction supply companies stated that prices for construction materials increased, especially for roofing shingles and asphalt. Transportation companies paid higher prices for fuel, and restaurant owners noted higher food costs. Some manufacturers planned to raise selling prices in the months ahead. Most retailers, however, did not anticipate raising prices, and restaurants expected menu prices to remain flat.