|Skip to content
Growth in the Tenth District economy remained solid in May. Consumer spending grew further, and transportation and high-tech firms reported generally strong activity. The energy industry continued to expand at a robust pace, and agricultural activity was mostly positive with generally favorable growing conditions and rising farmland values. Bankers reported mostly steady loan demand, better loan quality, and rising deposits. Growth in manufacturing activity slowed somewhat but remained modestly expansionary. Residential and commercial real estate activity was generally stable but still slow. Business contacts were mostly optimistic about future sales, and a number of firms reported increased capital spending and hiring plans. Prices rose more slowly, but wage pressures were limited outside of select industries and occupations with labor shortages.
Consumer spending continued to grow solidly, and most contacts expected further growth in the months ahead. Retail sales accelerated and nearly all retail contacts reported that sales were above year-ago levels. Sales of apparel and seasonal garden supplies were noted as particularly strong, while a few contacts characterized sales of appliance and some high-end items as weak. Store inventories edged higher, but most stores were satisfied with current stock levels. Auto sales continued to increase, but the pace slowed somewhat from the previous survey. Auto inventories declined further, and several dealers reported additional supply constraints due to the natural disaster in Japan. Restaurant sales were strong, and travel and tourism activity remained favorable. Most restaurant and tourism contacts expected solid activity heading forward.
Manufacturing and Other Business Activity
Growth in District manufacturing activity slowed following rapid growth in recent months, while other business activity expanded further. Factory orders declined after surging earlier in the spring, but factory hiring continued at solid rates and firms remained relatively optimistic about future sales. Growth in transportation activity accelerated from the previous survey, and most firms reported optimism about future sales. The majority of high-tech services firms reported strong growth in sales, though the pace slowed a bit from the previous month. Capital spending plans improved for transportation companies, and high-tech and manufacturing firms also reported fairly solid plans for future expenditures.
Real Estate and Construction
Residential and commercial real estate activity was stable but still generally slow. The decline in housing starts leveled off in May, and new home construction activity was similar to year-ago levels. Expectations for future homebuilding improved from the previous survey, and materials were generally available. Residential construction supply firms reported an uptick in sales, partly driven by demand for storm related items such as roofing and decking materials. Home sales were higher than the previous month but lower than a year ago. Expectations for future home sales were modestly positive, but home inventories climbed higher and home prices continued to edge down in most areas. Mortgage lending activity improved from the previous survey but was well below year-ago levels, particularly for refinancing activity. Commercial real estate activity was mostly flat, though it was slightly stronger than a year ago and contacts had a more positive outlook for future months. Vacancy and absorption rates were steady but expected to improve. Office prices and rents declined and were below year-ago levels in most cities. One contact noted continued obstacles in financing, and another firm said projects have decreased in overall size.
Bankers reported generally stable loan demand, increased deposits, and improvements in loan quality. Overall loan demand was stable to slightly lower in some cases. Demand for commercial and residential real estate loans was generally unchanged, while demand for commercial and industrial loans and consumer installment loans decreased. Credit standards largely remained unchanged in all major loan categories. Deposits increased for the third straight survey. Bankers reported improvements in loan quality compared to a year ago, and the outlook for loan quality was more favorable. The majority of bankers expected bank employment to remain unchanged over the next year, citing low expected growth, cost constraints, and uncertainty about regulations and government policies as the major reasons restraining hiring plans.
Energy activity continued to expand strongly in May. Nearly all contacts reported an increase in drilling activity and were optimistic about the months ahead. Crude oil prices remained elevated and favorable for drilling, and natural gas activity rebounded somewhat with a recent uptick in prices. Contacts reported that shortages of equipment and labor continued to somewhat restrain the rate of increase in drilling activity. Several companies have expanded their capital expenditure plans, mainly for projects directed towards drilling and exploration.
Rising farm income spurred record high farmland values and cash rental rates. Crop prices rose further with higher export demand, especially from China. Record pork exports bolstered hog prices, but increased cow slaughter and weaker than usual demand for grilling cuts dampened cattle prices. Many producers used cash rather than debt to pay for higher input costs, and farm equipment sales remained robust. Agricultural growing conditions varied in May. Recent heavy rains held up the start of the winter wheat harvest with early reports of below-average yields in drought-stricken areas. Despite planting delays due to wet fields, the corn and soybean crops were progressing normally.
Wages and Prices
Price levels generally rose at a slower rate in May, and wage pressures were mostly contained despite solid hiring plans. Manufacturing price increases remained common, but with some slowdown in materials price increases and with fewer firms planning to raise selling prices. Construction supply firms also reported a moderation in selling price increases, but builder input prices were considerably higher than the previous survey. Retail prices increased further and were expected to continue rising in future months. Transportation firms reported an increase in input prices, and restaurants said menu prices were well above year-ago levels. Wage pressures were still contained in most industries. However, some firms reported difficulties finding skilled workers and were forced to raise wages, particularly in information technology fields. Hiring plans have improved for most firms, particularly those in the energy, information technology, health-care, and manufacturing sectors.