June 21, 1995
Overview
The Tenth District economy grew at a moderately strong pace over the
past month. Retail activity improved in most parts of the region.
Manufacturing activity remained generally strong across the
district, although some signs of slowing emerged. In other sectors,
homebuilding activity eased slightly, energy activity slowed, and
heavy rains dimmed prospects for district crop producers.
Manufacturers continue to report increases in materials prices, but
prices of finished goods have been stable and wage pressures remain
subdued.
Retail Sales
Most retailers report sales increased last month from the previous
month and were generally running above year-ago sales. Several
retailers report strong sales in apparel and household goods. Most
respondents expect sales to grow steadily throughout the remainder
of the year. Despite this optimistic outlook, many retailers are
trimming inventories. Auto dealers report flat or declining sales
over the past month, citing bad weather and higher financing costs
as the main causes. Most dealers expect sales to increase during the
summer months.
Manufacturing
Most manufacturers continued to operate at high levels of capacity
last month, although some signs of slowing were evident. Backlogs of
orders fell at plants across the region. Respondents generally
report no difficulty in obtaining materials and do not expect supply
problems in the coming months. Most manufacturers are satisfied with
current inventory levels, although some are trimming stocks.
Energy
District energy activity slowed in May, despite an uptick in natural
gas prices and crude oil prices above year-ago levels. The average
number of drilling rigs operating in the district fell slightly,
resuming a six-month decline after pausing in April. Some industry
observers suggest, however, that activity in the district's energy
industry may pick up if the current forecast for higher natural gas
prices holds true.
Housing
Builders report housing starts fell slightly last month, due mainly
to bad weather across the region. Housing starts also remain below
their year-ago level. Some builders report sales of new homes
remained stable over the past month but were below their year-ago
pace. Building materials were readily available with no delays. With
mortgage rates declining, lenders expect moderate growth in mortgage
demand during the coming months.
Banking
Loans increased slightly at district banks last month. Most
respondents report gains in commercial real estate loam, home equity
loans, and agricultural loans. Demand for consumer loans was
constant, while demand for commercial and industrial loans,
construction loans, and home mortgages was mixed. Loan-deposit
ratios were up over the last month, and security investments were
mostly down.
None of the respondents changed their prime rate last month, and only one expects to change it in the near term. Almost all respondent banks report no change in consumer lending rates, and few expect to change rates in the near future. Lending standards were unchanged at all banks.
While more than half of the banks report an overall decrease in deposits, changes were mixed across various types of deposits. Large CD, IRA, and Keogh accounts rose slightly, while demand deposits and NOW accounts slipped. Changes in MMDAS and small time and savings deposits were mixed.
Agriculture
Inclement weather has eroded prospects for district crop production.
Winter wheat yields in much of the district are expected to be well
below normal due to last spring's freezing temperatures, recent
heavy rains, and developing disease problems. Heavy rains have also
delayed the planting of the district's corn and soybean crops.
Rising feed prices and low livestock prices have hurt the profit outlook for district livestock producers. As a result, some large- scale pork producers have delayed expansion plans, and some small- scale producers are leaving the industry. Despite weak cattle prices, few district cattle ranchers have reduced the size of their herds.
District bankers report an increase in the number of farm loam refinanced this year, following last year's losses in the livestock industry. While little if any improvement is expected in district farm incomes this year, bankers indicate that most farm borrowers remain in solid financial condition.
Prices and wages
Manufacturers continue to report widespread increases in materials
prices. Several manufacturers report increases in prices for
packaging materials. Labor markets remain tight in many parts of the
district, but reports of wage increases remain scattered. A late-
April survey of manufacturers across the district showed that price
increases for finished goods were much less widespread than earlier
in the year. Retailers continue to report stable prices and expect
prices to remain steady over the next several months.