July 31, 2002 Summary

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Prepared at the Federal Reserve Bank of New York and based on information collected before July 23, 2002. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials. District reports suggest that the economy expanded modestly in recent weeks, with an uneven performance across sectors. Boston, New York, Atlanta, and Dallas noted some tapering off in economic growth, while Cleveland and St. Louis indicated some improvement. Reports from the rest of the Districts point to continued moderate growth. Overall, prices of finished goods and services remained stable, though there were scattered reports of price pressures. Retail sales were mixed, with four Districts indicating some weakening, but five reporting a pickup, partly weather-related. Retail inventories were said to be in good shape, and many retailers expressed optimism about the near-term sales outlook. Vehicle sales were seen as weak in June but were boosted by incentive programs in early July. Manufacturing activity, though mixed across Districts and industries, appears to have improved, on balance. Residential real estate and construction activity was widely described as strong, though some softness was reported in the rental segment. In contrast, commercial real estate was almost universally described as weak, though stable in some cases. Travel and tourism activity was reported to be little changed overall, with the Western Districts tending to fare somewhat better than those on the East Coast. Reports from other service industries mostly pointed to stable activity. Banks reported strong demand for residential mortgages, steady demand for consumer loans, and weak, but in some cases improving, demand for commercial loans. Credit quality was still described as good, with no significant increases reported in delinquency rates. Agricultural conditions were described as poor in a number of Districts. Labor markets were characterized as slack but relatively stable in most Districts; New York and Kansas City indicated some softening, but Richmond noted modest improvement. The pace of wage increases generally remained subdued, but many Districts noted continued escalation of non-wage benefit costs, most notably health insurance. Prices of raw materials were generally stable, though prices of steel, plastics, and lumber have risen noticeably. Prices of finished goods and services were generally flat. Consumer Spending Retail sales were mixed across the Districts, with auto sales getting some boost from incentive programs in July. Some pickup in non-auto sales was reported in the New York, Cleveland, Richmond, St. Louis and San Francisco Districts, with some of the strength attributed to weather. However, Boston, Atlanta, Chicago, and Dallas indicated some weakening in spending. In general, purchases for the home--building materials, hardware, and furnishings--were characterized as strong. None of the Districts reported any complaints about retail inventory levels, although New York and San Francisco mentioned some intended inventory accumulation in anticipation of a longshoremen's strike on the West Coast. Looking ahead, there tended to be a general sense of optimism about the near-term outlook, though contacts in a number of Districts expressed concern about the risk that declining equity markets would affect the real economy. Retailers were said to be optimistic about the sales outlook in Philadelphia, Cleveland, Richmond, and Kansas City. However, contacts in the Boston and Dallas Districts expressed some concern. New York reported a decline in consumer confidence in June. Reports from automobile dealers were mixed, with June sales described as somewhat disappointing but July sales boosted by incentive programs. Cleveland noted a decline in new car sales, but steady demand for used vehicles. Looking ahead, auto dealers expressed some concern about inventory levels and future sales prospects in the Cleveland and Kansas City Districts. Manufacturing Manufacturing activity was generally reported to have improved modestly. While none of the Districts reported a general decline, many noted that some industries were expanding moderately while others were continuing to struggle. Vehicle assemblies and parts production were reported as expanding by Cleveland, Chicago, St. Louis, Boston, and Atlanta, although Philadelphia reported some slippage in transportation equipment orders. The semiconductor industry has continued to improve according to Dallas, San Francisco, and Boston. Production of construction-related materials, primarily residential, was still displaying strength in the Chicago District, generally up according to Dallas, brisk as reported by Philadelphia, and relatively strong in the Atlanta District. New York reported a general increase in overall manufacturing activity through June, but a modest weakening of conditions in early July. Minneapolis reported activity as increasing in Minnesota and the Dakotas. Richmond reported mixed conditions, with a rise in tobacco and paper manufacturing, but slippage in furniture and textiles. Kansas City saw continuing signs of a manufacturing recovery, despite some weakening in the volume of new orders, and firms were not quite as upbeat as a few months ago. Inventories were generally reported as steady or continuing to decline, and nearly all Districts reported continued optimism about the near term. Real Estate and Construction Residential real estate continued to show strength in virtually all Districts, but the commercial real estate sector continued to struggle. An overwhelming majority of Districts described the housing market as robust, with sturdy gains in sales activity and varying degrees of price appreciation. The weakest report on this sector came from Dallas where housing markets were said to be unchanged. Despite the overall strength, some weakness was noted at the upper end of the market in Richmond, Chicago, St. Louis, Kansas City, Dallas, and San Francisco. Declining equity markets were cited as one cause of this relative weakness, though New York noted that there has been no discernible effect thus far. In contrast, a number of Districts indicated that declining stock prices have actually boosted the perceived attractiveness of real estate as an investment. Apartment rental markets were reported to have softened in Richmond, Minneapolis, and San Francisco, but to have stabilized in New York. Residential construction activity was mixed but generally strong. Strong or increasing activity was reported in Atlanta, St. Louis, Minneapolis, Kansas City, and San Francisco. Shortages of developable land were said to be inhibiting construction activity and driving up prices in the Boston and Chicago Districts. Commercial real estate markets remained weak in most areas, with increasingly slack conditions noted in New York, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco. However, Cleveland noted an up-tick in conditions, though from low levels. Despite widespread weakness in office markets, Richmond noted some scattered signs of strength in the market for retail and warehouse space. Commercial construction activity continued to be sluggish in most areas. Tourism and Services Tourism and travel activity was relatively stable, on balance. Signs of improvement were noted across much of the western United States--specifically in the Minneapolis, Kansas City, and San Francisco Districts. However, there were reports of modest weakening in Districts along the Atlantic Coast. New York noted some slippage in hotel room rates; Richmond reported strong tourism activity and increased air travel in July but weaker hotel bookings for the months ahead; and Atlanta indicated declining hotel occupancy rates, as well as shorter stays and less spending by visitors to Florida. Conditions in other segments of the service sector were mixed. Boston reported that insurers have seen strong demand for life insurance but some declines in health plan membership due to softening labor markets. Richmond reports strong growth in trucking and shipping activity. Dallas notes slow improvement in service sector activity. Banking and Finance Banks report little change in overall lending activity, with continued strong demand for home mortgages and continued weak demand for business loans. Some softening in consumer loan demand was reported in New York and Dallas, but a moderate increase was noted in Atlanta. Home mortgage lending was reported to be strong in most Districts, with further strengthening seen in Philadelphia, Richmond, Chicago, and Kansas City. Also, refinancing activity increased in the Chicago and Kansas City Districts but weakened in New York and Cleveland. Delinquency rates were mostly stable and overall credit quality was described as strong and stable in most areas--including St. Louis, which reported an increase in bankruptcy and past-due filings. Tighter lending standards were reported in New York and Kansas City. More broadly, San Francisco reports that the financial sector remains healthy, but Philadelphia reports that investment firm revenues have been adversely affected by consumers shifting funds from equities to money markets. Agriculture, Mining, Natural Resources Agriculture conditions were mostly reported as poor, although conditions improved in parts of the South and West. Much-needed rains improved conditions in the Dallas District, parts of the Minneapolis District, and in Florida. However, drought or near drought conditions persisted in the Chicago, Richmond, Cleveland, and Kansas City Districts, and some states in the St. Louis, Minneapolis and Atlanta Districts. Most soybean and corn-producing areas suffered from oppressive dry conditions. A particularly severe drought continued to pummel Virginia and the Carolinas. Areas with dry weather also reported deteriorated pasture conditions for livestock grazing. Energy activity was described as strong by Kansas City and Dallas, though oil and gas drillings leveled off in both Districts in late June and early July after a strong May. Dallas reported smaller energy firms pulling back in recent weeks, cautious about anticipated lower demand for oil and natural gas. Kansas City reported some downward pressure on earnings in the natural gas industry, with prices flat nationwide but falling sharply in Wyoming. Labor Markets, Wages, Prices Labor markets were generally reported as subdued, with little or no upward pressure on wages. There were spotty reports of increased hiring in particular occupations, such as engineers, skilled nurses, skilled construction workers, and mortgage processors. While most Districts indicated little change in labor markets, New York and Kansas City reported some softening since the last Beige Book, and most contacts in the Cleveland and Minneapolis Districts indicated that they had no plans to increase hiring. Temporary employment activity was mixed but a bit stronger on balance--while New York and Chicago reported weakness, Richmond, Dallas, Atlanta, and Cleveland indicated some increase in activity. In the manufacturing sector, Richmond and Chicago reported some recent weakening in employment; however, Kansas City noted some improvement, and contacts in New York and Richmond indicated some pickup in labor demand in light manufacturing. Richmond and St. Louis commented that manufacturers plan to increase employment in the months ahead. Separately, Richmond reported increased hiring at service and retail firms, but Boston indicated a decline in retail administrative and sales workers. Job declines continued in the airline industry in the Dallas District. Wages were reported to be steady. Dallas noted some decline in wages of temp workers, while Kansas City indicated scattered labor shortages, but otherwise there was virtually no mention of wage pressures. However, there were widespread reports of escalating non-wage benefit costs. Prices for most goods and services were steady, with the widely noted exceptions of insurance (particularly health insurance), building materials (particularly lumber), steel, plastics and paper. Prices of other inputs, as well as selling prices, remained flat or declined, especially in manufacturing, according to nearly all Districts. There was continued discounting of retail products to entice consumers, according to some Districts. Spikes in wholesale spot electricity prices were reported in the San Francisco District due to warm weather. Boston reported a firming of semiconductor prices but declining prices for other high-tech goods. Dallas noted a continued downward drift of natural gas prices due to a build-up of inventories, which are likely to reach record levels by late summer. Chicago reported a firming of land prices for residential construction, while Richmond reported a moderate rise in service sector and manufactured goods prices. Return to top         Boston