August 9, 1995
Overview
The Tenth District economy continued to grow at a moderately strong
pace over the past month. Retail sales increased, manufacturing
activity remained generally strong, homebuilding rebounded somewhat,
and energy activity quickened. Agriculture, however, was hampered by
poor crops and low cattle prices. Manufacturers still report
increases in some materials prices, but retail prices and wages have
been stable.
Retail Sales
Most retailers report that sales increased last month and were
higher than year-ago sales. Sales of apparel were strong, but sales
of home improvement items were sluggish. Retailers generally expect
sales to improve during the remainder of the year and plan to expand
their inventories accordingly in coming months. Auto dealers report
sales increased over the past month, helped by readily available
credit for buyers and dealers. Most respondents expect sales to
continue increasing during the next few months.
Manufacturing
Manufacturers continued to operate at high levels of capacity last
month. None of the respondents report bottlenecks in production due
to capacity or labor constraints, but some report difficulty in
obtaining steel. Respondents were generally satisfied with current
inventory levels, but a few were trimming stocks.
Energy
District energy activity picked up slightly in recent weeks despite
a sharp decline in crude oil prices. Some of the new activity was
spurred by a modest increase in natural gas prices from the low
levels reached earlier this year. The average number of drilling
rigs operating in the district during the first three weeks of July
stood higher than the average for the previous two months. The
uptick, however, was not large enough to restore drilling activity
to year-ago levels.
Housing
Builders report housing starts rebounded somewhat last month but
remained below their year-ago level. Sales of new homes also picked
up but lagged behind their year-ago pace in many areas of the
district. Building materials were generally available with no
delays. Lenders expect lower mortgage rates to fuel moderate growth
in mortgage demand in the coming months.
Banking
Loans increased slightly at district banks last month, resulting in
higher loan-deposit ratios. Most respondents report gains in
commercial and industrial loans, consumer loans, home equity loans,
and agricultural loans. Demand was steady for home mortgages,
construction loans, and commercial real estate loans. Security
investments decreased.
Most banks report no change in their prime rate last month, but some banks lowered rates and additional declines may be forthcoming. Only a few banks lowered consumer lending rates or expect to lower rates in the near term. At all banks, lending standards remain unchanged.
Total deposits at district banks were steady last month. MMDAs increased slightly and NOW accounts decreased slightly. Large CDs, demand deposits, and small time and savings deposits were unchanged.
Agriculture
Unfavorable weather has diminished prospects for district crop
production. Harvest of the district's winter wheat crop is nearly
complete, but crop yields and quality are well below normal.
Development of the district's corn and soybean crops remain a few
weeks behind normal due to planting delays last spring. Ideal
weather will be required during the remainder of the growing season
to attain normal yields. Higher crop prices, however, promise to
shore up incomes for farmers who escape severe crop losses.
Higher crop prices have also boosted feed costs and deepened losses for district cattle producers. A surge in red meat and poultry production promises to hold down cattle prices, delaying a rebound in industry profits. With profits down, some district ranchers plan to trim the size of their breeding herds.
Overall, farm income in the district may decline slightly this year after a much steeper drop last year. The drop in farm income has weakened business activity somewhat in small rural communities that depend heavily on agriculture. But business conditions remain healthy in the larger rural trade centers that have a broad economic base.
Prices and wages
Manufacturers continue to report increases in materials prices,
especially in paper and steel. Labor markets remain tight in some
parts of the district, but few employers report wage increases.
Retailers report steady prices and expect no significant price
increases over the next few months.