December 7, 1994
Overview
The Tenth District economy continues to grow at a healthy pace.
Retail sales increased over the past month, and manufacturers
continue to operate at high levels of capacity. District energy
activity improved slightly, although homebuilding activity continues
to slow. In the farm sector, conditions remain good for crop
producers but somewhat less favorable for cattle producers. While
the supply of skilled labor is tight across most parts of the
district, only a few manufacturers and a few builders report upward
pressure on wages. Retail prices remain stable, while the prices of
some manufacturers' inputs are up slightly from a year ago.
Retail Sales
District retailers report that sales have increased from last month
and a year ago. Sales of home furnishings and men's apparel remain
notably strong. Most district retailers are satisfied with current
inventory levels after increasing their stocks over the past month.
Retailers expect holiday sales to be significantly higher than last
year. Auto dealers report that, while sales were off slightly during
the past month, sales are expected to increase over the next few
months. Financing is available for both dealers and buyers. Dealers
are generally maintaining steady inventory levels.
Manufacturing
Most firms are operating at high capacity levels. Most agents
continue to report shortages of skilled labor. Several agents report
longer lead times but do not expect significant problems in
obtaining materials during the next few months. Firms are generally
satisfied with their inventory levels.
Energy
Drilling activity in the district improved slightly in October and
the first two weeks of November. Crude oil prices helped, moving
slightly higher in recent weeks. But energy activity across large
parts of the district remains dampened by low natural gas prices.
Housing
Most builders report a decline in housing starts from last month and
a year ago. Moreover, most builders expect building activity to
continue cooling off during the coming months. Sales of new homes
have picked up somewhat over the last month but are below their
year-ago pace. Builders in most parts of the district report
materials are generally available with few delays. Mortgage demand
continues to decline as interest rates climb. Most lenders expect
demand to remain sluggish in the months ahead.
Banking
Loan demand last month rose at almost all reporting banks. Most
banks report higher demand for commercial and industrial loans,
consumer loans, and commercial real estate loans. Demand was down
for home mortgage loans, flat for home equity loans, and mixed for
residential construction loans and agricultural loans. Loan-deposit
ratios were up from the previous month, and security investments
were down.
All respondents raised their prime rate last month, and most expect to raise the rate again in the near term. All banks raised their consumer lending rates last month, and almost all anticipate further increases in the near future. Lending standards were unchanged.
Deposits last month were flat to up at most banks. Most respondents report increases in demand deposits. NOW accounts were constant to up, while large CDs were constant to down. Money market deposit accounts and small time and savings deposits were both mixed, with about equal numbers of respondents reporting increases and decreases.
Agriculture
Harvest of the district's corn and soybean crops is nearly complete,
with farmers in much of the district harvesting the biggest crops on
record. The district's winter wheat crop is generally in good
condition.
Large supplies of red meat and poultry are holding down livestock prices and clouding the outlook for district livestock production. Lower feed costs and somewhat stronger fed cattle prices have trimmed losses to near break-even levels in most cattle feedlots. But a sharp decline in feeder cattle prices has pushed down profits on ranches. Meanwhile, low hog prices have triggered the liquidation of hog herds by some small-scale producers. Despite the downturn in livestock earnings, bankers report their farm loan portfolios generally remain in good condition.
Prices and wages
Retail prices remain stable and are generally expected to remain
constant over the next three months. Manufacturers' purchasing
agents report input prices are flat to slightly higher than a year
ago, and most expect input prices to rise slightly in the months
ahead. Despite widespread tightness in markets for skilled labor,
only a few manufacturers report upward pressure on wages. New home
prices have been stable over the last month but remain above year-
ago levels. A few builders report an increase in prices of certain
materials such as sheetrock and lumber. While construction wages
have generally remained stable, a few builders report higher costs
for skilled workers such as carpenters.