July 13, 2016
Economic activity in the Tenth District increased modestly compared with the previous survey, and expectations for future activity were positive in most sectors. Consumer spending rose moderately as sales in the retail, restaurant and tourism industries picked up. Manufacturing activity expanded slightly at both durable and nondurable goods-producing plants in June. Wholesale trade, transportation, professional and high-tech firms reported considerable gains in sales activity. District real estate activity edged up, with contacts noting stronger construction activity, higher prices and increased residential sales. Bankers reported modestly stronger loan demand, stable deposit levels and unchanged loan quality and credit standards. The energy sector continued to contract but at a slower pace than in the previous survey period. District farm revenue improved modestly due to higher corn, soybean and hog prices. Input prices increased slightly, and wages picked up across most sectors.
Consumer Spending
Consumer spending rose moderately in June, and expectations for future growth were favorable across most sectors. Retail sales continued to grow moderately and were higher than year-ago levels. Several retailers noted an increase in sales for promotional items and summer outdoor products, while home improvement and building material products sold poorly. Contacts anticipated moderate retail sales growth in the months ahead, and inventory levels were expected to rise at a modest pace. Auto sales were flat and remained below year-ago levels, but dealer contacts expected a moderate pick-up in the coming months. Auto inventories decreased and were expected to fall further. Restaurant sales edged up moderately in June, and contacts expected solid improvements in the months ahead. District tourism activity improved further since the previous survey and remained above year-ago levels, although respondents expected some weakening in the next few months.
Manufacturing and Other Business Activity
Manufacturing activity expanded slightly in June, and other business activity rose considerably. The improvement in manufacturing activity was spread across both durable and nondurable goods-producing plants, particularly aircraft, food, plastics, and electronic equipment. The production, shipments, and new orders indexes increased markedly in June and indicated a pickup in manufacturing activity over the past month. However, most indexes remained below year-ago levels. Manufacturers' capital spending plans rose moderately, and expectations for future activity were solid.
Outside of manufacturing, wholesale trade and transportation firms reported a strong increase in sales, while activity in professional and high-tech firms rose modestly. Transportation contacts expected activity to continue to improve in coming months, but wholesale trade, professional, and high-tech firms anticipated sales to remain flat. Transportation and wholesale trade firms reported modestly higher capital spending plans, while professional and high-tech contacts expected capital spending to remain mostly unchanged.
Real Estate and Construction
District real estate activity continued to increase moderately in June, and contacts anticipated additional gains in the next few months. Residential real estate sales and home prices rose moderately compared to the previous survey period, and sales of low- and medium-priced homes continued to outpace sales of higher-priced homes. Contacts anticipated that home sales would continue to grow moderately in the coming months, and home prices would rise at a strong pace. Residential inventories were well below year-ago levels, and further decreases were expected in the months ahead. Residential construction firms noted a strong increase in housing starts, sales and construction material inventories compared to the previous survey period and the same time last year. Commercial real estate activity strengthened modestly as absorption, completions, construction underway and prices picked up. Sales of commercial real estate were flat over the previous survey period but were moderately above year-ago levels. Expectations for the commercial real estate market were positive.
Banking
Overall loan demand expanded modestly in June, with bankers indicating steady demand for consumer and commercial and industrial loans and increased demand for commercial real estate, residential real estate and agricultural loans. Most bankers reported that loan quality was unchanged compared to a year ago, and a majority of respondents did not expect a change in quality over the next six months. Credit standards remained largely unchanged in all major loan categories, and deposit levels were stable.
Energy
The pace of contraction in District energy activity slowed moderately since the last survey period, while expectations for the coming months improved markedly but remained cautious. The number of active oil and gas drilling rigs fell modestly, particularly in Oklahoma. Local firms expected oil prices to increase somewhat by the end of this year, as several global supply disruptions together with faster-than-expected declines in domestic production and improved global demand forecasts were projected to help balance oversupply. However, producers did not anticipate significant changes to their credit availability and continued to expect more defaults, bankruptcies, mergers and acquisitions in the sector. In the natural gas market, the natural gas spot price rose to its highest level this year due to a strong seasonal increase in summer demand and flat production levels.
Agriculture
District farm revenue improved modestly from the previous reporting period. Despite market volatility, corn and soybean prices rose modestly due to international production concerns, providing some relief to persistently weak profit margins in the District's farm sector. Wheat prices remained flat compared to the previous survey period, and profit margins remained tight even though early reports of harvested yields have been strong. In the livestock sector, hog prices rebounded to year-ago levels and were generally above the breakeven cost of production. Conversely, cattle prices declined slightly from the previous reporting period due to slightly softer demand which continued to suppress profits in the District's cattle sector.
Wages and Prices
Input prices in most sectors edged up compared to the previous survey period, while selling prices were mixed and wages continued to grow. In the retail sector, input prices rose slightly, while selling prices increased at a slower pace than in the previous survey. Restaurant input prices held steady after falling in the prior survey, and menu prices remained flat. Transportation input prices rose modestly, while selling prices held steady. Construction prices continued to increase slightly. Manufacturers reported a continued decrease in finished goods prices, despite a modest rise in raw material costs. Manufacturers expected both finished goods and raw materials prices to pick up in the coming months. Restaurant and transportation contacts continued to report modest wage growth, while retail sector wages grew moderately. Contacts in these sectors expected wages to increase in the next few months. Respondents noted shortages for commercial drivers, production workers, and skilled technicians.