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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of Cleveland and based on information collected before January 12, 2000. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a representation of the views of Federal Reserve officials.

Reports from most Federal Reserve Districts indicated strong economic growth in December and early January. Economic activity was described as strong in most Federal Reserve Districts. Growth was characterized as solid in the Philadelphia and Kansas City Districts, and as moderate in the Districts of Atlanta and Chicago.

Consumer spending growth was rapid during the holiday shopping period, and many retailers expect the high level of activity to continue into early 2000. Manufacturing continued to expand in nearly every District and was broadly based across industries. Exceptions to this were in the food, apparel, agricultural equipment, and some construction-based industries. Residential real estate construction was mixed across regions, with the northeastern states experiencing an inventory shortage, the southern and midwestern states a slowdown, and the western states an expansion. Commercial construction activity varied across the country. Bank lending was mixed, with a decrease in mortgage lending that was often offset by increases in consumer and commercial lending.

Labor markets remained tight in all Districts. However, the tight labor markets did not seem to be matched with large wage increases. Most consumer prices appear to be holding steady in much of the country, although a few Districts reported moderate increases. Producer prices also appear to be flat, with the exception of rising petroleum prices.

The century rollover caused little or no disruption to commercial or production activity, and consumer stockbuilding was limited to increases in items such as bottled water and batteries. Few future disruptions are anticipated, and few problems concerning Y2K-related inventories are expected.

Consumer Spending
Retail sales attained or exceeded expectations for the month of December in all Districts except the St. Louis District, where sales increases of 4 to 5 percent were considered to be below expectations. Sales were especially high throughout the nation in electronics, toys, and jewelry. Several Districts reported lower-than-average sales of apparel due to unseasonably warm weather.

All regions reported large gains in e-commerce. The growth in Internet sales had a minimal reported effect on more traditional shopping, with retailers only in the St. Louis District reporting negative effects. Some retailers in the San Francisco District mentioned that e-commerce sales were concentrated in the beginning of the holiday period and that the sales stimulated competition in retail markets. Many Districts reported an increase in the intent to invest in e-commerce as a result of the high sales.

Auto sales were high thoughout the country, especially for sport utility vehicles and light trucks.

Industrial activity was generally strong throughout the country. The Boston, Cleveland, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco Districts all reported robust growth in manufacturing. Philadelphia reported new orders just holding steady, although shipments were rising. Richmond reported a moderate increase in new orders. New York and Atlanta reported steady activity, and Kansas City reported a drop-off from previous high levels.

The advance in manufacturing activity has been broadly based. The Boston District reported strong growth in semiconductors and paper, and Philadelphia in lumber, plastics, and metal products; Cleveland reported export-driven growth in heavy machinery and domestic-driven growth in electronic building components and steel; Richmond reported increased shipments in machinery, metal products, and electronics, and Atlanta in chemicals, paper, drugs, and high-tech products; Chicago indicated strength in autos and steel, St. Louis in high-tech products, paper, wood products, and electrical equipment, and Dallas in construction materials (except for cement and concrete); finally, San Francisco reported strength in high-tech products, drugs, and chemicals, driven by both domestic and export demand.

However, some industries are contracting in some regions. Notably, demand for agricultural equipment (in the Chicago District), apparel (in the Atlanta District), textiles, foods, and tobacco (in the Richmond District), and cement and concrete (in the Dallas District) were all reported to be soft.

Real Estate and Construction
Residential construction was mixed across Districts. The Boston and New York Districts both reported low inventories of homes, with new construction limited by shortages of construction labor and buildable land. The Philadelphia District, however, reported a decline in demand for construction labor. The Cleveland, Richmond, Atlanta, Chicago, Minneapolis, and St. Louis Districts all reported slower residential construction activity. On the other hand, the Kansas City District reported steady residential construction, and the Dallas and San Francisco Districts (where home inventories are tight) both reported high levels of residential construction activity. Where residential construction has slowed, higher interest rates were often mentioned as the reason.

Commercial construction also varied across Districts and did not always follow the residential construction patterns. In the Cleveland District, commercial construction is growing. In the Richmond District, increased city vacancy rates reportedly led to reduced construction activity. Commercial construction is booming in Florida, while it is slowing in other parts of the Atlanta District. In the Chicago District, there is a slight slowing, although vacancy rates are low. In the St. Louis District, construction is steady; in the Minneapolis District, it is high, although vacancy rates are rising. In both the Dallas and San Francisco Districts, commercial construction is strong.

Agriculture and Natural Resources
Low prices for cereal crops continued to affect farm incomes, although farmers in Missouri mentioned that foreign demand for these products was picking up. The winter wheat crop generally looks good in much of the country, while agriculture in Texas is suffering from a drought. Hog producers are reducing their herds in response to low pork prices. The Minneapolis, Kansas City, and San Francisco Districts all reported that cattle producers are doing well, with a combination of high beef prices and low feed prices.

Increases in oil prices have led to both the activation and building of new rigs in the Minneapolis and Kansas City Districts. The Dallas District reported new drilling for natural gas. Increases in steel production have stimulated greatly increased iron ore production in the Minneapolis District.

Financial Services and Credit
Bank lending was mixed across Districts. Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and San Francisco reported strong growth in loans. St. Louis and Dallas reported flat lending, and New York indicated a seasonal softness. Even those Districts reporting growth in total loans often indicated a softness in mortgages, particularly in refinancings, due to higher rates. These were more than offset by strength in consumer and commercial loans.

The New York and Cleveland Districts reported that delinquencies were down and credit standards were higher, while Richmond reported less stringent loan requirements. Standards were reported unchanged in the Chicago and Kansas City Districts.

All Districts reported tight labor markets. Atlanta reported that Florida help-wanted ads are at record volume. Specific categories of employees in especially short supply included office managers (New York and Cleveland), high-tech workers (Atlanta, Dallas, and San Francisco), nurses (Atlanta, Minneapolis, and Kansas City), truckers (Kansas City and Dallas), and pharmaceutical workers (Minneapolis and San Francisco). Increasing numbers of construction workers are looking for work due to soft demand in Philadelphia and Minneapolis while they are sought by employers in Atlanta, Kansas City, and St. Louis.

Wages and Prices
Wage increases varied throughout the country. The Cleveland, Atlanta, Chicago, Kansas City, and St. Louis Districts reported stable wages or moderate increases that are consistent with productivity gains. Richmond reported moderately strong increases in the retail and service industries. Dallas reported wage increases for truckers and lawyers. Minneapolis said that an increasing fraction of firms was planning wage growth of at least 4 percent. Many Districts indicated that wage pressure is being met by non-wage benefits such as stock options, bonuses, and increased health benefit coverage.

Most Districts reported steady consumer prices. Businesses cited competition and increased productivity as reasons for not increasing their output prices, even in the face of increases in the prices of some raw materials. There were some exceptions, however. The Minneapolis District noted signs of accelerating inflation, including reports that many consumers expect the Consumer Price Index to rise by more than 3 percent and that a rising percentage of firms plan price increases. Philadelphia reported planned increases during the year 2000, Richmond reported moderate price increases in both the retail and service sectors, Boston noted rising hotel prices, and New York reported sharp increases in real estate prices in the New York City metropolitan area.

Input prices were usually reported as being flat with the exception of energy inputs, which are rising in price. Several Districts reported anticipated steel price increases. San Francisco reported raw materials price increases in logs. San Francisco also reported steady declines in the prices of telecommunication and Internet services.

The Effect of Y2K
There was little impact of the Y2K computer bug. Most Districts reported only minor disruptions, such as an increase in consumer demand for items like bottled water and batteries. Even this demand was described as such a small portion of the overall business that inventory disruptions were minor. There was little or no producer stockpiling in anticipation of the event. Banks indicated that Y2K caused no liquidity problems and that less cash was withdrawn than anticipated.

The Richmond District reported a fall in tourism that may be Y2K related. The Dallas District reported some uncertainty in cargo demand due to possible Y2K stockpiling and some unemployment of information technologists. This was unusual in that several Districts reported more information technology employment opportunities for expected increased computer-related business now that Y2K efforts have largely passed. The Richmond District reported temporary employment agencies are having no problems placing temporary computer workers, who have been released from Y2K projects, into new jobs.

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Last update: January 19, 2000