April 16, 2008
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Prepared at the Federal Reserve Bank of New York and based on information collected on or before April 7, 2008. 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.
Reports from the twelve Federal Reserve Districts indicate that economic conditions have weakened since the last report. Nine Districts noted slowing in the pace of economic activity, while the remaining three--Boston, Cleveland, and Richmond--described activity as mixed or steady.
Consumer spending was characterized as softening across most of the country, with some Districts reporting year-over-year declines in retail and/or auto sales. In contrast, tourism was generally described as strong, with a number of Districts noting particular strength in foreign visitors. Reports on nonfinancial services varied by District: demand for transportation services was generally characterized as weak, while business and health services continued to expand; other service industries were said to be mixed. Trends in manufacturing also varied across Districts. Reports on real estate and construction were generally anemic for the residential sector; activity in the commercial sector has slowed. Financial institutions in many Districts indicated some deceleration in consumer loan demand, tightening in lending standards, and deterioration in asset quality. Most Districts reported improved conditions in the agricultural sector and robust activity in the energy industry.
Labor markets were mostly described as weakening since the last report, though a few Districts reported ongoing shortages of skilled workers and some Districts noted wage pressures. Increases in input costs were widespread, accompanied by somewhat smaller rises in selling prices.
Consumer Spending and Tourism
Retail inventories were generally reported to be steady or rising. Automobile inventories were said to be accumulating in the Philadelphia and Atlanta Districts. Among non-auto retailers, despite weakness in sales, only a few reported any notable inventory accumulation; Atlanta cited some increase in inventories, while the Richmond and San Francisco Districts noted that some inventory accumulation has prompted retailers to cancel orders.
Despite the general weakness in consumer spending, tourism was generally described as robust, with that strength, in a number of instances, attributed to international visitors. The Boston, New York, Atlanta, Minneapolis, and Kansas City Districts reported strong tourism activity, while the Richmond and Chicago Districts described that sector as mixed, with pockets of strength. San Francisco indicated mixed but generally weak tourism activity. Reports from Boston, Atlanta, Chicago, and Minneapolis specifically cited foreign visitors as a source of strength.
Demand was reported as strong for aerospace, aircraft, and defense goods, as well as for steel and food. Automakers increased production modestly in the Cleveland and Chicago Districts, but vehicle production declined in the Atlanta district. The Philadelphia District found that that demand for metals and machinery had increased. Many Districts cited strong exports generally. Most Districts saw a continued slide in the demand for goods related to residential construction. Excess capacity led to production declines in the high-tech industry in the Dallas District, and Chicago reported weak demand for heavy equipment. Uncertainty about economic conditions is leading to a varied, but generally subdued, outlook for manufacturers.
Real Estate and Construction
Declines or downward pressures in selling prices were specifically reported in the Boston, New York, Philadelphia, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, and San Francisco Districts. In particular, New York and San Francisco noted some incipient price declines in areas that had previously shown resilience--respectively, New York City and the Pacific Northwest, as well as Utah. On the other hand, the Cleveland District noted some stabilization in home prices.
Commercial real estate markets were generally reported to be steady or softening in most areas. Weaker conditions in the rental market were reported in eight Districts: New York, Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco. On the other hand, the leasing market was found to be steady in Boston, Kansas City and Dallas. Reports on commercial development were mixed with activity having weakened in the Philadelphia, Atlanta, and San Francisco Districts, but having increased in the Cleveland, Chicago, and Kansas City Districts. St. Louis characterized commercial construction as strong. However, sales of commercial properties were generally indicated to be sluggish, while prices were said to be under downward pressure. The Boston, Philadelphia, Minneapolis, Kansas City, Dallas, and San Francisco Districts all reported weakness in commercial real estate sales and prices.
Banking and Finance
Credit quality was reported to have deteriorated, on balance, since the last report. Increased delinquency rates were noted by New York, Philadelphia, and Cleveland, while Kansas City reported that loan quality remained lower than a year ago. Widespread tightening in credit standards was reported, especially on residential and commercial real estate loans. In general, banks were reported to be tightening credit standards in the New York, Cleveland, Atlanta, Chicago, Kansas City, Dallas and San Francisco Districts. In addition, Boston noted that standards remain tight on commercial mortgages, while Philadelphia indicated that banks are limiting lending in this category. Richmond indicated tighter standards on residential mortgages.
Agriculture and Natural Resources
Districts reporting on energy continued to see robust levels of activity and steady to increasing prices. In the Dallas District, drilling remained strong and natural gas production has continued to increase. In the Minneapolis District, expansion of the mining industry was underway, while oil and gas exploration remained robust. In general, contacts contended that increased demand for energy was expected to continue to boost activity and prices.
Despite the general softening in their markets overall, Atlanta and Chicago noted scattered shortages of skilled workers in various service industries. Dallas reported relatively tight labor market conditions overall and cited shortages of managers and engineers, as well as farm workers. Staffing and temp agencies reported mixed trends in labor demand: New York, Richmond, and Chicago reported some softening, whereas Cleveland and Dallas note some pickup. In the financial services industry, some weakening in employment trends was reported in the New York, Chicago and St. Louis Districts, and San Francisco noted job losses in firms servicing the real estate industry.