March 13, 1996
Overview
The Tenth District economy continued to grow at a moderate
pace during the past month. Retail sales increased modestly and
homebuilding activity strengthened. Manufacturing activity slowed
slightly. Energy activity remained sluggish, while weak profits in
the cattle industry held down farm income. Labor markets remained
tight in much of the district, but wages generally held steady and
retail prices rose only slightly.
Retail Sales
Retailers report sales increased modestly over the
past month and remained above last year's level. Some retailers
report sales of apparel were strong, while sales of home furnishings
were weak. Retailers generally expect sales to strengthen during the
next few months. Most retailers indicate satisfaction with their
inventory levels and expect to hold inventories steady in the months
ahead. Automobile dealers report sales increased slightly last month
from the sluggish pace the month before, and most dealers are
optimistic that sales will strengthen further this spring.
Manufacturing
District manufacturers continued to operate at high
levels of capacity last month, although there were some signs of
slowing in manufacturing activity. No production bottlenecks due to
capacity constraints were reported. Manufacturing materials were
readily available, and most manufacturers noticed a decline in lead
times required to obtain materials. A January survey of district
manufacturers indicated most manufacturers were trimming materials
inventories and were planning further inventory reductions in the
months ahead.
Housing
Builders generally report housing starts increased last
month and remained above last year's level. Construction of single-family homes improved, while multifamily construction remained
steady. Builders expect housing starts to strengthen further with
warmer spring weather. Sales of new homes increased slightly last
month and remained above last year's pace. Builders report the
inventory of unsold homes was generally lean and new home prices
continued to rise, especially for low-priced homes, which have been
in shortest supply. Building materials are readily available, and
builders anticipate little change in the availability or prices of
materials in the next few months, despite a recent rise in lumber
and concrete prices. Most mortgage lenders expect mortgage demand to
strengthen further in the months ahead.
Banking
Banks generally report loan demand was unchanged last
month, holding loan-deposit ratios steady. Some banks report gains
in consumer loans and home mortgage loans. Commercial and industrial
loans, home equity loans, residential construction loans, and
commercial real estate loans all held steady, while agricultural
loans declined slightly. Security investments held steady.
Most bankers report gains in total deposits, supported by increases in MMDAs and small time and savings deposits. Demand deposits, NOW accounts, large CDs, and IRA and Keogh accounts held steady.
All respondent banks reduced their prime rate last month, and most expect a further cut in the near future. Most banks also reduced their consumer lending rates, with half of the banks anticipating further reductions. Lending standards were generally unchanged.
Energy
Activity in the district energy industry slowed further last
month. Demand for heating fuel boosted natural gas prices, but crude
oil prices remained weak. As a result, the number of drilling rigs
operating in the district declined slightly and remained well below
last year's level.
Agriculture
Dry, cold weather is eroding yield prospects for the
district's winter wheat crop. Much of the crop is in poor condition
in the district's primary wheat producing region in central Kansas
and central Oklahoma, where the moisture shortage is most severe.
The crop is generally in fair condition in other parts of the
district, although timely spring rains will be required to ensure
normal yields. With uncertain prospects for this year's harvest and
tight global inventories, crop prices have risen to the highest
level in years.
High feed costs and low cattle prices continue to hold down profits in the district cattle industry. Most district feedlots continue to earn modest profits, due to low prices for young feeder cattle. Low feeder cattle prices, however, have resulted in losses for district ranchers, who have begun to trim the size of their breeding herds. Agricultural bankers expect continued weak profits in the cattle industry to limit improvement in overall farm income in 1996, even though higher crop prices may boost profits for crop producers.
Wages and Prices
Upward pressure on wages and prices in the
district remains subdued. Parts of the district continue to report
tight labor markets, especially for entry-level workers, but reports
of rising wages are few and widely scattered. Manufacturers report
declining prices for some raw materials, such as steel and aluminum,
and rising prices for other materials, such as rubber and some
chemicals. Retailers report only slight price increases and most
expect prices to remain stable in the months ahead.