October 14, 2015
Economic activity in the Tenth District eased slightly since the prior Beige Book, although with mixed conditions across sectors. Consumer spending fell slightly overall, despite some pickup in auto sales. District manufacturing activity continued to decline, and transportation contacts noted a marked decrease in sales. Energy firms reported moderate declines in activity, and farm income remained subdued due to weak prices. On the positive side, District real estate activity increased modestly for both residential and commercial activity. Professional, high-tech, and wholesale trade firms reported moderate increases in sales, and bankers reported steady loan demand, deposit levels, and overall loan quality. Prices grew more slowly than in recent surveys, and eased in some sectors. Although wage pressures moderated somewhat, contacts in a few industries continued to report labor shortages for skilled and entry-level positions.
Consumer Spending
Consumer spending activity fell slightly, but activity remained higher than a year ago, with mixed expectations heading forward. Retail sales slowed further in August and early September but were higher than year-ago levels. Several retailers noted a drop in sales for luxury and home improvement products, although sales of lower-priced items were steady. Expectations for future sales slowed modestly but remained positive, and inventory levels were expected to be unchanged. Auto sales increased modestly and were higher than a year ago, although dealer contacts expected a slowdown in sales growth for the months ahead. Auto inventories increased from the previous month and were expected to remain stable. Restaurant sales declined sharply and were moderately below year-ago levels, with contacts expecting further declines in the months ahead. District tourism activity contracted further in August and early September, and was flat versus a year ago. Tourism contacts expected modest declines in activity for the upcoming months.
Manufacturing and Other Business Activity
Manufacturing activity declined at a similar pace as in previous months, while other business activity was mixed but generally more favorable. Both durable and nondurable goods production continued to decline, although some nondurable production such as plastics, chemicals, and food improved slightly. Durable goods production remained weak, particularly for metals and machinery products. Producers continued to cite weak oil and gas activity along with a strong dollar as key reasons for the sluggish activity. Manufacturers' capital spending plans remained weak, and producers' expectations for future activity dropped to their lowest levels since 2009. Professional, high-tech and wholesale trade firms reported moderate increases in activity, with sales well above year-ago levels and solid expectations for future months. Transportation contacts noted a marked decrease in sales from the previous survey, although many firms expected activity to rise steadily in the months ahead. Most service businesses reported fairly solid capital spending plans.
Real Estate and Construction
District real estate activity continued to increase at a modest pace in late August and September, and expectations remained positive for the months ahead. Residential real estate sales and home prices, led by strong gains in Colorado, rose moderately compared to the previous survey period, and inventories declined slightly. Sales of low- and medium-priced homes continued to outpace sales of higher-priced homes. Expectations for future residential sales were lower than the previous survey period but still slightly positive with many contacts citing seasonal factors as a reason for expected slower growth. Residential construction and related business activity slowed slightly since the last survey as housing starts and traffic of potential buyers declined but overall activity remained above year-ago levels. Commercial activity continued to expand at a modest pace in late August and September, and contacts expected this pace of growth to continue over the coming months.
Banking
Bankers reported steady overall loan demand, deposit levels and loan quality, compared to the results of the last survey. Respondents indicated a steady demand for commercial and industrial, commercial real estate, residential real estate and consumer installment loans. Demand for agricultural loans declined slightly. Most bankers indicated loan quality was unchanged compared to a year ago. 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. Most respondents reported stable deposit levels.
Energy
Energy activity contracted moderately since the last survey period, and expectations for future activity fell sharply as the outlook for oil prices became more pessimistic. The number of active oil and gas drilling rigs fell marginally since the last survey period, particularly in Colorado. Sustained low oil prices tightened financing for several local producers, with many commenting that they will adjust activity to operate within cash flows or will put drilling on hold. Furthermore, most contacts expected future capital spending to decrease, with several expecting a large drop. Employment in the sector also declined and several respondents expected more layoffs in the coming months as they focus on cost and debt reduction. Natural gas prices were down slightly since the last survey period as cooler temperatures across the region eased demand for cooling.
Agriculture
Farm income expectations remained subdued as low crop prices persisted and livestock prices declined since the last survey period. With corn and soybean crops in good to excellent condition throughout most of the District, expectations of a large harvest kept prices near last year's level and slightly less than in the summer growing months. In addition to strong production expectations, sluggish export demand for agricultural products put further downward pressure on crop and livestock prices, as both fed and feeder cattle prices decreased significantly in September. An exception to the trend of weak prices is the cow-calf sector, where profits have remained strong. Weaker farm income and reduced cash flow also continued to drive demand for further short-term financing in the farm sector.
Wages and Prices
Both input and finished goods prices grew more slowly than in recent surveys and eased in some sectors. Wage pressures were also mostly lower even as contacts once again noted labor shortages in key skilled positions. Retail input and selling prices rose at a slightly slower pace as did construction final sales prices. Restaurant menu prices declined, and manufacturers' raw materials and finished goods prices continued to fall. Plant managers expected raw materials prices to increase, while their future selling prices were anticipated to decline. Transportation prices were steady, although contacts expected some input price increases. Retail wages rose at a slightly higher rate, while restaurants and transportation wages increased at a slower pace. Many respondents continued to report shortages in entry level positions, service workers, truck drivers, skilled technicians, and in information technology.