June 15, 2005
Federal Reserve Districts
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Economic activity in the Third District expanded in May, but the pace of growth appeared to ease. Manufacturers reported increases in orders and shipments during the month, although the gains were not as widespread as in April. Retail sales of general merchandise edged down during the month, and auto sales fell. Banks reported that lending continued on an upward trend in May, although at a slower rate compared with April. Commercial real estate market conditions showed little change, although leasing activity has been on the rise. Sales of new and existing homes continued at a brisk pace.
Third District business contacts generally expect improvement in the region's economy in the months ahead, but not a strengthening in growth. Manufacturers expect increases in shipments and orders during the next six months. Retailers anticipate an improved rate of sales during the spring, with modest year-over-year gains. However, auto dealers expect slower sales for the rest of the year. Commercial real estate contacts forecast gradual tightening in office markets. Residential builders and real estate agents expect sales to continue at high rate, but some expect sales for the year as whole to be lower than last year.
The region's manufacturers generally expect further growth in business activity, although their expectations are not as robust as they were earlier in the year. Around one-third of the firms surveyed in May expect their shipments and orders to increase during the next six months, and about one-fifth expect decreases. Capital spending plans remain positive, on balance; about one-fourth of the surveyed manufacturers plan to increase capital expenditures in the next six months, half plan steady spending, and about one-tenth plan to reduce capital outlays.
Third District manufacturers reported rising prices in May, on balance, although the number of firms noting increases during the month was lower than in earlier months this year. Firms in all but a few of the major manufacturing industries in the region indicated that they had experienced increased input costs and raised prices for their own products in May compared with April. During the next six months almost one out of two of the manufacturers polled in May expect increases in input prices, and about one out of ten expect decreases. About one out of four plan to increase the prices of their own goods, and around one out of six expect to reduce prices. This represents less widespread expectations of higher prices than in earlier months of the year.
Auto dealers in the region generally reported declines in sales in May compared with April and with May of last year. Inventories have risen, and a large number of dealers have boosted leasing promotions to move cars off their lots. Dealers do not expect the sales rate to improve, and they believe sales for the year as a whole will be below last year.
Real Estate and Construction
Residential real estate agents indicated that sales have picked up, and that the pace of sales in May was brisk. Although many real estate agents anticipate sales for this year will not match those of last year, they generally believe a high sales rate is likely this summer as long as mortgage interest rates remain around current levels. Homebuilders reported continuing high demand for new homes and large backlogs. House prices continue to appreciate for both new and existing homes. Builders indicated that costs of materials and labor have been rising slightly, and they reported continuing steep increases in land prices.