November 27, 2002
Federal Reserve Districts
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Overall Eleventh District economic activity appeared to be unchanged or down slightly in late October and the first half of November. Contacts continued to indicate that uncertainty is affecting their business decisions, and many respondents do not expect a pickup in the economy until next year. Overall manufacturing activity was down slightly, and activity in the service sector remained weak. Construction and real estate activity continued to be soft. There was little change reported in the energy sector or the financial services industry. Automobile sales were down in early November, but other retail sales rebounded from a very weak September. Agricultural conditions were mostly favorable.
Prices and Labor Markets
Selling prices were flat to down for most construction-related manufactured products, with intense competition expected to continue putting downward pressure on prices. Cement producers said prices are down 15 percent from a year ago. Selling prices for reinforced steel were down and at very low levels, according to producers. There continues to be downward price pressures on real estate. In Dallas, according to contacts, some ten-year leases include two years free rent. Homebuilders report heavy use of price incentives. An Austin builder said a $180,000 home could come with as much as $15,000 of free upgrades. In contrast with most other sectors, contacts continue to report rising prices for all types of insurance.
The labor market remained soft. There were reports of continued layoffs or failure to replace attrition in the manufacturing sector. Firms that supply temporary workers say wages are unchanged or slightly down from last year. Legal firms say salary increases are expected to be smaller than usual.
Orders for high-tech manufactured products were flat to slightly up, but employment levels continued to shrink. Contacts were slightly more optimistic than the last report because some leading indicators of future orders picked up in the first two weeks of November. Inventories of most products were lean, they said, although stocks of some final products are high. One respondent noted that a significant pickup is unlikely because excess capacity will likely restrain business capital investment.
Demand for gasoline has been strong and refineries have been "running very hard" in the last few weeks. Refiners reported improved margins, as product prices generally rose more rapidly or fell more slowly than crude prices. Demand for petrochemicals was still weak, according to producers who say that the recovery in chemicals that seemed to be under way for much of the year has stalled.
Transportation services remain at very weak levels, according to contacts. Airline travel is very sluggish, particularly for business. Holiday travel bookings seem to be weaker than the past two years, and travelers appear to be taking trips of shorter duration.
Automobile sales are down. Dealers say it is very difficult to get customers into showrooms, and they are very concerned that recent rebates and financing incentives have "stolen sales from the future." Trade-in prices on used vehicles have fallen dramatically because there is a flood of one- and two-year old vehicles coming in off leases. Insurance costs are also affecting the ability of typical buyers to purchase a new vehicle, dealers say.
Construction and Real Estate