July 27, 2005
Federal Reserve Districts
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Economic activity in the Third District was expanding in early July. Manufacturers reported increases in orders and shipments compared with June. Retail sales of general merchandise increased compared to the prior month and year. Auto sales remained on the rise following a strong upturn from May to June. Banks reported that lending continued on an upward trend, with gains in business lending and home equity credit. Firms in the District's major service industries reported growth in activity in the past few months about in line with the growth rates they posted earlier in the year.
Third District business contacts generally expect business activity in the region to continue to expand at around the current pace. Manufacturers expect increases in shipments and orders during the next six months, although the balance of positive forecasts is not as great as it was during the first half of the year. Retailers anticipate steady sales growth, with moderate year-over-year gains. However, auto dealers are uncertain about the outlook, and some expect the sales rate to decline in the months ahead. Bankers expect continued loan growth near the recent pace. Service sector firms expect moderate, steady increases in business.
On balance, the region's manufacturers expect continued growth in business activity, although positive expectations are not as widespread as they were in the first half of the year. About half of the firms contacted in July expect their shipments and orders to increase during the next six months, and about one-fourth expect decreases. On balance, capital spending plans remain positive among District manufacturers, but the number of firms scheduling increased outlays is somewhat lower than it was during the first half of the year.
Reports of price increases from Third District manufacturers outnumbered reports of decreases in early July, although a majority of manufacturing firms reported steady prices for the month. One-third of the manufacturing firms contacted for this report noted increases in input prices from June to early July, and one-fifth raised output prices. Less than one-tenth reported declines in either input or output prices. The number of firms noting increases for the month was about the same as during the second quarter, and lower than in the first quarter. During the next six months about half of the manufacturers contacted for this report expect increases in input prices, and almost one-third plan to increase the prices of their own goods; only a very small percentage expect declines in either input or output prices.
Auto dealers in the region generally reported a pickup in sales in June and early July stemming from new price discounts by manufacturers. As a result, inventories have been reduced to more desirable levels. However, dealers indicated that sales of large sport utility vehicles have been declining, and they attribute the sales falloff to high gasoline prices. Dealers expressed some concern that the pace of sales will ease later this year as the impact of recent price cuts wanes.
Investment companies reported gains in cash inflows in recent weeks, with about equal growth in purchases of money market, bond, and equity funds. Investment company officials said investor confidence appears to be improving, although both individual and institutional investors continue to believe there remains some risk that financial conditions could deteriorate and economic growth could falter.