April 15, 2015
Economic activity in the Tenth District was little changed since the prior Beige Book, with mixed conditions across sectors. Consumer spending declined slightly, despite some pickup in tourism activity. District manufacturing activity also fell slightly, and transportation and wholesale trade firms reported weaker activity. Energy firms reported sharp declines, while agricultural conditions softened somewhat. On the positive side, District real estate activity increased modestly for both residential and commercial activity. Professional and high-tech firms noted a rebound in activity from previous months, and bankers reported solid loan demand, stable loan quality, and steady deposits. Prices rose slightly in most industries, while firms in many sectors reported increased wage pressures as well as labor shortages for specific positions.
Consumer Spending
Consumer spending activity fell slightly, but activity remained higher than a year ago, and contacts had solid expectations heading forward. Retail sales slowed in March but were higher than year-ago levels. Several retailers noted a drop in sales for luxury and building products, although sales of lower-priced items were steady. Expectations for future sales were strong, though inventory levels were expected to be unchanged. Auto sales slowed in March and were flat compared to last year, although dealer contacts expected solid growth in the months ahead. Auto inventories fell from the previous month, with further decreases expected. Restaurant sales declined considerably and were slightly below year-ago levels, although contacts anticipated positive growth in coming months. District tourism activity rebounded in March and was well above year-ago levels. Tourism contacts expected solid growth for the months ahead.
Manufacturing and Other Business Activity
Manufacturing activity declined slightly in March, while other business activity was mixed but remained above year-ago levels. Manufacturing production levels eased, and producers' expectations for future activity moderated somewhat but remained slightly positive. The overall slower growth was mostly attributable to declines in plastics, food, and chemical production and continued weakness in metals and machinery. Looking across District states, the largest decline was in Oklahoma, which has a large concentration of oilfield equipment manufacturing. Manufacturers' capital spending plans fell from the previous survey, while export orders improved slightly. Transportation and wholesale trade firms reported weaker activity than in the previous survey, but sales were still above year-ago levels with solid expectations for future months. Professional and high-tech services contacts noted an increase in sales from the previous survey, and many firms expected activity to rise steadily in the months ahead. Most businesses reported fairly solid capital spending plans.
Real Estate and Construction
Real estate activity increased at a modest pace in March as both residential and commercial real estate markets expanded. Residential real estate sales increased moderately over the previous survey period and were above year-ago levels, with low- and medium-priced homes continuing to outpace sales of higher-priced homes. Home prices continued to make strong gains as inventories fell. Expectations for sales and prices were strong, and inventories were expected to decline further. Residential construction activity moved up as housing starts, traffic of potential buyers and prices increased in March over the previous survey period. Contacts anticipated modest increases in residential construction activity in the coming months. Commercial real estate activity increased at a modest pace over the previous survey period as vacancy rates decreased and absorption rose but at a slightly slower pace than the previous survey. Commercial real estate construction expanded at a moderate pace. Construction underway, completions, sales, and prices were increasingly positive compared to the last survey. The commercial real estate market was expected to continue to strengthen at a moderate pace over the coming months.
Banking
Bankers reported a slight increase in overall loan demand, stable to increasing loan quality and steady deposit levels through March. Respondents indicated slightly increased demand for commercial and industrial and consumer installment loans, while demand for commercial real estate, residential real estate and agricultural loans remained relatively steady. Most bankers indicated loan quality was unchanged compared to a year ago, with little change expected over the next six months. Credit standards remained largely unchanged in all major loan categories. In addition, deposit levels were stable for a majority of bankers.
Energy
Energy activity contracted sharply and the outlook remained uncertain, but most contacts expected industry conditions to improve later this year. The number of active drilling rigs posted another large decline, particularly in Oklahoma. Additional layoffs were announced, and contacts also commented that employee hours were cut slightly and overtime was reduced or eliminated. Access to credit tightened somewhat for energy firms, but some contacts reported that capital markets and private equity funding was still available. Contacts also reported that their breakeven oil price had come down considerably in recent months as drilling costs declined and technology improved, but capital spending plans were still sluggish. The natural gas market was largely unaffected by the stretch of harsh winter weather in late February, and the natural gas spot price stayed low and stable.
Agriculture
Agricultural conditions weakened somewhat in March, as growing conditions for wheat deteriorated slightly, and profit margins narrowed for some livestock operations. Scattered showers aided soil moisture in some areas, but more than half of the winter wheat crop in Kansas and Oklahoma was rated in fair to poor condition due to warm, dry weather. Although mild weather aided spring fieldwork, District farmers intended to plant slightly less corn and soybeans compared with last year, primarily due to lower crop prices. However, feeder cattle prices edged up since the last survey, boosting profits for cow/calf producers but reducing profit margins for feedlot operators. Profit margins also softened for hog producers as increased production and reduced export demand for pork placed downward pressure on hog prices.
Wages and Prices
Prices in most industries continued to rise slightly compared to the previous survey, and wages also grew modestly in many sectors, with contacts citing labor shortages for particular workers. Retail selling prices increased modestly, while restaurant menu prices were steady compared to the previous survey period. Manufacturing raw materials prices declined slightly but were higher than a year ago, and finished goods prices were modestly lower. Transportation input prices continued their moderate decline, while selling prices rose slightly. Construction materials prices held steady compared to the previous month but were expected to rise in the coming months. Retail sector wages experienced a mild decline, but wages in the restaurant and transportation sectors rose slightly. Contacts expected wages in these sectors to grow in future months. Respondents cited labor shortages for truck drivers, skilled technicians, and IT developers.