June 1, 2016
Economic activity in the Tenth District increased at a slightly slower pace compared with the previous survey, with mixed conditions across sectors. Consumer spending activity rose modestly and District real estate activity increased moderately in late April and May. Professional and high-tech firms reported moderate increases in activity, and bankers reported steady loan demand, stable deposit levels, and unchanged loan quality. On the other hand, energy activity continued to decline, and District manufacturing firms reported persistent modest declines in activity. Transportation and wholesale trade activity decreased considerably from the previous survey period, and agricultural credit conditions deteriorated further, with weak farm income and continued low commodity prices. Input and selling prices were mixed across sectors. Contacts in several industries reported a modest increase in wages, and workers in certain skilled occupations were in short supply.
Consumer Spending
Consumer spending increased modestly in late April and May, and expectations for future growth were mixed across sectors. Retail sales continued to grow moderately, but were slightly below year-ago levels. Several retailers noted an increase in sales for lower-priced items and spring outdoor products, while luxury products sold poorly. Contacts anticipated a modest slowdown in sales the next few months, and inventory levels were expected to rise moderately. Auto sales continued to decline at a moderate pace and remained below year-ago levels, although dealer contacts expected a modest pickup in sales for the months ahead. Auto inventories decreased but were expected to rise slightly in coming months. Restaurant sales slowed considerably but were above year-ago levels, with contacts expecting slight improvements in the months ahead. District tourism activity improved sharply and was above year-ago levels. Tourism contacts expected some weakening in activity for the months ahead.
Manufacturing and Other Business Activity
Manufacturing activity continued to decline modestly in late April and May, while other business activity was varied. The continued decline in manufacturing was driven by both durable and nondurable goods factories, particularly for food, machinery, and plastics products. Factory activity remained weak in most District states. Production, shipments, and export orders fell modestly, and activity remained lower than the previous year. Manufacturers' capital spending plans continued to decline but at a slower pace, and expectations for future activity improved moderately.
Outside of manufacturing, professional and high-tech firms reported a moderate increase in sales, with slight improvements expected in future months. Transportation and wholesale trade contacts noted considerable declines in activity, and many firms expected sales to slow further in the next three months. Professional and high-tech firms reported favorable capital spending plans, while transportation and wholesale trade contacts expected capital spending to remain mostly flat.
Real Estate and Construction
Real estate activity in the District increased moderately in late April and May, compared with both the previous survey and a year ago. Residential real estate sales and home prices were strongly above levels from the previous survey, and inventories were slightly higher. Sales of low- and medium-priced homes continued to outpace sales of higher-priced homes. Home sales and prices were expected to increase and inventories were expected to remain low in the months ahead. Contacts in construction supply noted an increase in housing starts, sales, prices and inventories, but traffic of potential buyers was down slightly over the same period last year. Commercial real estate activity increased slightly as absorption, completions, construction underway and prices increased, but sales edged down slightly. The commercial real estate sector was expected to expand at a slightly faster pace over the coming months.
Banking
Most bankers reported steady overall loan demand in late April and May. Respondents indicated steady demand for commercial and industrial, commercial real estate, agricultural, and consumer installment loans. A slight majority of bankers indicated increasing residential real estate loan demand. Most bankers reported loan quality as unchanged compared to a year ago and expected quality to remain essentially flat over the next six months. Credit standards remained largely unchanged in all major loan categories. Finally, a majority of respondents reported stable deposit levels.
Energy
District energy activity continued to decline moderately, and expectations for future activity remained subdued. Although oil prices picked up modestly since the last survey period, drilling activity continued to decrease and cash flows remained tight. Several District firms filed for bankruptcy in the past few months, but many expected to have enough liquidity to continue operations as normal throughout the process. Employment in the sector continued to decline at a modest pace as more producers and services companies scaled back in an effort to reduce costs further. Activity in the District coal sector also contracted moderately with several large operators announcing layoffs affecting Wyoming mines.
Agriculture
Despite a moderate increase in soybean and hog prices in May, District contacts reported that most commodity prices remained below levels considered to be profitable, and generally at or below year-ago levels. Low commodity prices and low farm income weighed on credit conditions, and bankers reported further reductions in loan repayment rates and a significant increase in the number of farm borrowers with increased carry-over debt. District contacts expected demand for short-term financing to remain strong amid a relatively pessimistic outlook for farm income. Alongside low farm income, farmland values and cash rents also declined slightly from a year ago.
Wages and Prices
Across the District, input and selling price growth was mixed, while wages grew slightly since the previous survey period. Retail prices increased moderately and were expected to increase further in coming months. Input prices for restaurants declined, while menu prices were steady. Transportation input prices were steady, though their selling prices declined modestly. Transportation contacts expected future input prices to grow moderately, though selling prices were anticipated to stay flat. Construction prices continued to increase slightly with further increases expected. Manufacturing prices continued to decline modestly and were expected to decrease further in the near future. Contacts in several industries reported a slight increase in wages and expected a slight increase moving forward. Contacts reported a shortage of commercial drivers, various skilled technicians, and some entry-level workers.