Fed Beige Book: Slight to Moderate Economic Growth Across Districts

Overall Economic Activity

Economic activity expanded at a slight-to-moderate pace in March and early April. While most Districts reported that growth continued at a similar pace as the previous report, a few Districts reported some strengthening. There was little change in the outlook among contacts in reporting Districts, with those expecting slight-to-modest growth in the months ahead. Reports on consumer spending were mixed but suggested sluggish sales for both general retailers and auto dealers. Reports on tourism were generally more upbeat. Reports on loan demand were mixed, but indicated steady growth. Reports on manufacturing activity were favorable, although contacts in many Districts noted trade-related uncertainty. Most Districts reported stronger home sales, although some Districts noted low demand for higher-priced homes. Among reporting Districts, agricultural conditions remained weak, with contacts expressing concerns over the impact of current and future rainfall and flooding.

Federal Reserve Bank of Kansas City

Summary of Economic Activity
Tenth District economic activity continued to expand slightly in March, and contacts expected additional growth in the months ahead. Consumer spending was little changed, but contacts expected modest increases moving into the summer months. Manufacturing activity expanded modestly, and capital spending plans rose moderately as manufacturers expected rising sales and high capacity utilization moving forward. District real estate activity rose slightly. Energy activity held steady since the previous survey period, but respondents’ expectations were positive due to higher oil prices. District agricultural conditions weakened slightly, and recent severe weather could stress farm operations in the months ahead. Bankers reported a decline in loan demand for a majority of categories. Employment levels edged higher, and a majority of contacts expected employment to rise in the months ahead. Wages continued to rise at a modest pace since the previous survey period and were strongly above year-ago levels. Input and selling prices were mostly higher across sectors, and additional gains were expected.

Employment and Wages 
Employment across the District edged higher in March as slight decreases in the overall services sector were offset by modest gains in the manufacturing and energy sectors. Contacts in the auto sales, transportation, professional and high-tech services, real estate, health services, and tourism and hotels sectors noted declines in employment since the previous survey period, while the retail trade, wholesale trade, restaurant, manufacturing, and energy sectors reported rising employment levels. However, a majority of contacts from both services and manufacturing sectors noted higher levels of employment compared to year-ago levels and expected additional growth moving forward. Employee hours fell across most services sectors, but respondents in the manufacturing and energy sectors noted slightly higher average employee workweeks.

A majority of respondents continued to report labor short-ages for low- and medium-skill workers, including auto technicians, truck drivers, and all positions for retail stores and restaurants. A few respondents also noted shortages in high-skill positions such as accountants, pilots, and pharmacists. Wages continued to expand at a modest pace since the previous survey period and were strongly above year-ago levels. Moderate wage gains were anticipated in the months ahead.

Prices 
District input and selling prices were mostly higher across sectors, with growth in input prices outpacing that of selling prices. Contacts expected an acceleration in the pace of growth of input and selling prices in the months ahead. Respondents in the retail sector reported strong growth in input prices and moderately higher selling prices since the previous survey period. Input prices in the restaurant and transportation sectors grew modestly and restaurant selling prices were slightly higher while transportation selling prices were flat. Contacts in both industries expected input and selling prices to grow strongly moving forward. Construction supply respondents noted steady prices since the previous survey period but expected moderate increases in the coming months. Manufacturers reported that prices of finished products edged up, while prices of raw materials grew modestly.

Consumer Spending
Consumer spending was little changed compared to the previous survey period, but contacts expected modest increases in sales in the months ahead. Retail sales dropped slightly and auto sales were flat compared to the previous survey period, but each remained above year-ago levels. Retail contacts noted lower-priced items and seasonal goods sold well, while higher-priced items sold poorly. Auto contacts reported that inventory levels were well above both month-ago and year-ago levels. Restaurant sales were flat compared to the previous survey period, and one contact attributed weak sales to harsh weather conditions. Tourism sales rose slightly in March, and contacts anticipated increases in sales in the months ahead.

Manufacturing and Other Business Activity 
Manufacturing activity grew modestly since the previous survey period, and business contacts in wholesale trade, transportation, and professional and high-tech sectors reported mixed sales. Factory activity increased at both durable and nondurable goods plants due primarily to increases in food and beverage products and wood, pa-per, and printing manufacturing. Production, shipments, and new orders were above year-ago levels in the manufacturing sector, with additional gains expected in the coming months. Manufacturing contacts anticipated moderate increases in capital spending in the next few months, with many contacts noting high levels of expected sales growth and capacity utilization as reasons for increased capital spending plans.

Outside of manufacturing, firms in the wholesale trade and transportation sectors experienced modestly lower sales compared to the previous survey period, while contacts in the professional and high-tech sector reported a slight increase. Contacts in both wholesale trade and professional and high-tech services expected sales to increase moderately in the months ahead, while transportation sector contacts anticipated modest sales growth.

Real Estate and Construction 
District real estate activity expanded slightly in March, and contacts expected additional growth in the coming months. Residential home sales were flat compared to the previous survey period and moderately lower than year-ago levels. Sales of low- and medium-priced homes continued to outpace sales of higher-priced homes. Despite significantly higher residential inventory levels, home prices rose slightly higher. Residential sales, inventories, and selling prices were expected to rise in the months ahead. Residential construction activity was modestly higher than year-ago levels as housing starts, traffic of potential buyers, and sales rose. Contacts expected additional gains in residential construction activity in the months ahead. Commercial real estate activity edged up since the previous survey period as sales, absorption, construction underway, completions, and prices rose while vacancies fell. Respondents in the commercial real estate sector projected an acceleration in activity moving forward.

Banking
Bankers reported a slight decrease in overall loan demand since the previous survey period, most notably for commercial real estate, commercial and industrial, consumer installment, and agricultural loans. However, demand for residential real estate loans increased from previous survey levels. Bankers indicated a modest improvement in loan quality compared to a year ago and expected a slight decline in loan quality over the next six months. Credit standards remained largely unchanged in all major loan categories, and deposit levels increased.

Energy
Energy activity held steady compared to the previous survey period, but expectations for future activity were positive as the price of oil has continued to rebound. Although oil prices were lower than a year ago, they were still higher than most firms’ average price needed to be profitable. Across the District, the number of active oil and gas rigs continued to decline, especially in Oklahoma, New Mexico, and Colorado. However, production per rig continued to increase and overall oil and gas production remained at high levels due to continued productivity gains. In addition, more than half of District energy contacts expected pipeline capacity to increase in the next year.

Agriculture
The farm economy in the Tenth District weakened slightly from the prior reporting period, and severe weather conditions could weigh on the outlook moving forward. Across the region, corn and wheat inventories were slightly higher than a year ago, and prices for corn and wheat were slightly lower. Soybean inventories in the District were significantly higher than a year ago, with prices moderately lower. In the livestock sector, a slight increase in cattle prices and a sharp increase in hog prices provided some support for revenues. However, recent severe flooding and blizzards throughout the District resulted in losses of cattle and stored crops as well as damage to roads, fields, and other infrastructure. Although the total impacts of the floods remained unknown as recovery ensues, conditions could put additional stress on some farm operations in the coming months.

For more information about District economic conditions visit: www.KansasCityFed.org/Research/RegionalEconomy