January 18, 2017
Summary of Economic Activity
Economic activity in the Tenth District increased modestly in late November and December, and most sectors were optimistic about growth in the next few months. Consumer spending increased with retail, auto and tourism contacts reporting stronger sales than the previous survey period. Manufacturing activity expanded moderately due to stronger activity in both the durable and nondurable goods sectors. Contacts in transportation, professional, and high-tech firms reported increased sales, but firms in the wholesale trade sector noted a continued moderate decline in activity. District real estate conditions were modestly weaker as residential real estate activity declined and commercial real estate activity remained flat. Energy activity across the District experienced moderate growth, and expectations remained positive. District farm income remained subdued as low crop and livestock prices persisted. Employment increased slightly since the previous survey period, and contacts reported modest wage growth. Input prices were up slightly in most sectors, and selling prices were mixed.
Employment and Wages
Employment and employee hours rose slightly since the previous survey period. Contacts in the transportation, professional and high-tech, real estate, education and manufacturing sectors noted increased employment levels in late November and December, while employment declined in the wholesale trade sector. Additionally, employment in the retail and auto sectors was below year-ago levels, but was flat in the restaurant sector. Employment in the energy sector increased, although remained below year-ago levels. Contacts across all sectors expected stable-to-increasing employment levels over the next six months. Average employee hours worked increased slightly in the service and manufacturing sectors. Respondents noted a shortage of commercial drivers, skilled technicians, and service workers.
Contacts in most sectors continued to report modest wage growth, and anticipated moderate wage growth in the months ahead.
Prices
Input prices were up slightly in most sectors compared to the previous survey period, while selling prices were mixed. In the retail sector, input prices edged up, while selling prices fell modestly. Both input and selling prices declined in the restaurant industry, but were expected to increase in the coming months. Respondents in the transportation sector reported slightly higher input prices, but selling prices held steady after contracting during the prior survey period. Prices in the construction sector rose, with additional moderate increases expected in the coming months. Manufacturers reported a modest rise in finished goods prices after falling in the previous survey, while raw material costs edged up. Manufacturers expected a slight increase in both finished goods and raw materials prices over the next few months.
Consumer Spending
Consumer spending increased modestly in late November and December, and was expected to increase moderately in the next six months. Retail sales rose moderately since the previous survey and were considerably above year-ago levels. Winter and holiday items sold particularly well, while sales of luxury products were sluggish. Retailers anticipated sales to rise in the next few months, and inventory levels were expected to increase slightly. Auto sales rebounded modestly over the survey period, but remained below year-ago levels. However, dealer contacts expected a strong pickup in sales during the months ahead. Auto inventories increased and were expected to rise slightly in the coming months. Restaurant sales fell modestly and were slightly below year-ago levels. Respondents in the restaurant sector expected a moderate increase in activity heading forward. District tourism activity remained above year-ago levels, and a strong increase in activity was expected moving into the winter months.
Manufacturing and Other Business Activity
District manufacturing activity expanded moderately since the previous survey period, while the pace of other business activity varied. Manufacturers reported considerable improvement in both durable and nondurable goods production, particularly in metals, machinery, and food products. Production, shipments, and new orders grew at their fastest pace in over two years. Manufacturers' capital spending plans expanded moderately, and many contacts expressed signs of optimism heading forward.
Outside of manufacturing, professional, high-tech, and transportation firms reported moderate sales increases, with strong improvements expected in future months. Wholesale trade contacts noted a continued moderate decline in activity but were optimistic about future sales. Professional, high-tech, and wholesale trade firms reported favorable capital spending plans, while transportation contacts expected capital spending to continue to fall.
Real Estate and Construction
Overall District real estate conditions were modestly weaker as residential real estate activity declined and commercial real estate activity remained flat. Residential sales and inventories were moderately lower than the previous survey period, but contacts expected sales to increase over the coming months as adverse seasonal factors abated and buyers sought to purchase homes at low interest rates. Home prices remained moderately higher in late November and December and were expected to rise further. Residential construction activity declined since the previous survey, with flat housing starts and moderately lower construction supply sales. Contacts anticipated residential construction activity to increase moderately in the months ahead. Contacts in the commercial real estate sector reported similar conditions since the previous survey period as absorption and completions increased slightly, but construction underway, sales, vacancy rates and prices were flat. Commercial real estate expectations were modestly positive.
Banking
Most bankers reported steady overall loan demand in late November and December including steady demand for commercial and industrial, commercial real estate, residential real estate, agricultural and consumer installment loans. Loan quality was unchanged compared to a year ago according to most bankers. In addition, a majority of respondents expected loan quality to remain essentially the same over the next six months. Credit standards remained largely unchanged in all major loan categories, and a majority of respondents reported stable deposit levels.
Energy
District energy activity increased moderately in late November and December, and expectations remained positive. The number of active oil and gas drilling rigs continued to pick up modestly across the District. Oil prices rose moderately to reach eighteen-month highs after OPEC announced a lower oil production target in late November 2016. However, the majority of survey contacts expected actual production to exceed the target. Most firms projected U.S. oil production to be above previous forecasts due to continued expectations of higher oil prices. Natural gas prices were slightly higher due to strong seasonal demand. Local firms expected natural gas prices to be near current levels through 2017, but not high enough to substantially increase drilling activity.
Agriculture
Farm income expectations weakened slightly as most agricultural commodity prices remained lower than a year ago. In the livestock sector, cattle prices declined from the previous year due to growing inventories, and hog prices also remained lower than year-ago levels. In the crop sector, large corn and wheat inventories kept prices subdued, but strong yields in some areas helped to offset losses from low prices. However, strong export demand boosted soybean prices moderately from a year ago. With the exception of soybeans, livestock and crop prices remained below the cost of production for some producers. District contacts reported weaker loan repayment rates than the previous year as farm income and cash flow continued to tighten. Weaker farm income and credit conditions also continued to pressure farmland values downward modestly.