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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of Minneapolis and based on information collected before November 24, 2008. This document summarizes comments received from business and other contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials.

Overall economic activity weakened across all Federal Reserve Districts since the last report. Districts generally reported decreases in retail sales, and vehicle sales were down significantly in most Districts. Tourism spending was subdued in a number of Districts. Reports on the service sector were generally negative. Manufacturing activity declined in most Districts, and new orders were soft. Nearly all Districts reported weak housing markets characterized by reduced selling prices and low, but stable, sales activity. Commercial real estate markets declined in most Districts. Lending contracted, with many Districts reporting reductions in residential, commercial and industrial lending and tightening lending standards. Agricultural conditions were mixed with a relatively good harvest but concerns about profitability. Mining and energy production and exploration started to soften due to lower output prices.

District reports generally described labor market conditions as weakening. Wage pressures were largely subdued. District reports characterized price pressures as easing in light of some decreases in retail prices and declines in input prices, particularly energy, fuel, and many raw materials and food products.

Consumer Spending and Tourism
Consumer spending weakened during the reporting period. Retail sales were described as weak or down in the New York, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas and San Francisco Districts. In Kansas City, consumer spending slowed sharply. Recent retail sales were steady compared with early fall but were lower than a year ago in Philadelphia and were mixed in Boston. Some Districts reported decreased purchases of big-ticket items, including furniture, appliances, electronics and luxury items. Discount stores reported stronger sales volumes than department stores. Inventory levels were relatively stable, as many stores anticipated the recent slowdown in sales. District reports indicated that retailers were preparing for a relatively slow holiday sales season. New York noted that this season is likely to feature more price discounting than last year. Boston, Philadelphia, Cleveland and Dallas reported that some retailers have cut back capital expenditure plans for 2009.

District reports indicated that vehicle sales deteriorated since the last report. Sales of more expensive and less fuel efficient vehicles were particularly slow. However, Kansas City noted an increase in demand for used cars. Chicago, St. Louis, Minneapolis, Kansas City and San Francisco reported that a number of car buyers had difficulty obtaining financing.

Tourism activity was relatively slow. Fall tourism was down in New York, Atlanta, Chicago, Minneapolis, Kansas City and San Francisco, while tourism conditions were mixed in Richmond. Kansas City and San Francisco reported slower restaurant business. Atlanta noted that business travel was down, while San Francisco reported a rising incidence of canceled corporate meetings in Southern California. In contrast, reservations at a ski resort in the Richmond District were somewhat stronger for the Thanksgiving and Christmas holidays, and some tourism businesses in the Minneapolis District were cautiously optimistic for the winter season in part due to lower gasoline prices.

Activity in the services sector generally contracted in most Districts since the last report. New York, Richmond, Chicago, Minneapolis, Dallas and San Francisco reported deteriorating conditions. Most of these Districts were seeing weakness across a wide range of services, including advertising, architecture, business support, information technology, legal services and temporary help firms. Boston reported mixed conditions for information technology services, ranging from declines of 10 percent to gains of 25 percent. Minneapolis and Dallas reported growing demand for bankruptcy services, and Richmond noted that telecommunications and CPA firms were facing strong demand.

Manufacturing activity declined noticeably since the last report. All 12 Districts reported weaker manufacturing conditions, to varying extents. Boston, Philadelphia, Cleveland, Richmond and Kansas City reported reductions in orders. Almost all Districts noted reductions in exports. Philadelphia, Cleveland, Richmond, Chicago and Atlanta reported lower shipping volumes. Dallas reported weakness in most forms of transportation. Nearly every District reported decreased demand for construction materials; Cleveland and Chicago noted, in particular, decreased steel production. Several Districts reported multiple plant shut-downs, and expectations for capital expenditure were down. A few sectors saw increased activity. Boston, Chicago, St. Louis and San Francisco noted stronger demand for aerospace manufacturers. St. Louis, Dallas and San Francisco reported increases in food processing.

Real Estate and Construction
Residential real estate continued at a slow pace nationwide. Sales were down in most Districts, but mixed activity was noted in the Boston, Atlanta and Minneapolis Districts. Boston, New York, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City and Dallas noted decreases in housing prices. Inventories of unsold homes remained high in the New York, Atlanta, Kansas City and San Francisco Districts, but declined in Chicago and Minneapolis. Philadelphia, Richmond, Chicago and Kansas City reported relatively stronger demand for lower- and middle-priced "starter homes."

Commercial real estate markets weakened broadly. Vacancy rates rose in Boston, New York, Richmond, Chicago, Kansas City and San Francisco, but were mixed across markets in the St. Louis District. Leasing activity was down in almost all Districts. Rents fell in the Boston, New York and Kansas City Districts. Despite reductions in construction materials costs, commercial building activity declined in many Districts with tighter credit conditions as a factor.

Banking and Finance
Business and consumer lending activity continued to slow in most Districts. New York reported weakening loan demand in all categories, while Kansas City and San Francisco also witnessed substantial lending declines. Lending activity in other Districts was mixed among loan categories. In contrast, Philadelphia indicated that its banks saw loan volume rise in November, and some regional banks reported picking up new business borrowers. Cleveland reported that business loan volume has been steady to higher, and some bankers reported actively marketing their loan business.

Credit standards rose across the nation, with several Districts noting increases in loan delinquencies and defaults, especially in the real estate sector. Credit conditions remained tight. Chicago reported that FDIC actions and Federal Reserve lending had improved liquidity and slowed deposit outflows. Dallas indicated that government capital investments have led larger institutions to feel less constrained in their lending, while some smaller banks reported that scrutiny from regulators was making new deals more difficult to forge.

Agriculture and Natural Resources
Districts reported mixed results in agriculture. Chicago, St. Louis, Minneapolis, Kansas City and Dallas expected decent harvests. However, Richmond, Chicago and Minneapolis reported delays in harvests due to wet weather. Atlanta, Chicago, Minneapolis, Kansas City, Dallas and San Francisco reported decreases in several crop and/or cattle prices. Chicago, Kansas City, Dallas and San Francisco noted that cattle producers' profits were squeezed. Tightening credit conditions for agricultural producers were noted in the Kansas City, Dallas and San Francisco Districts. The bankruptcy of a large ethanol producer created uncertainty for crop producers near its Midwest plants.

Activity in the energy and mining sectors decreased since the last report. Atlanta, Minneapolis, Kansas City, Dallas and San Francisco reported softening in oil and gas activity due to lower prices and, in some cases, weather disruptions. Meanwhile, mining activity decreased in the Minneapolis District.

Labor Markets
Signs of labor market slowing were evident in several District reports. Boston, Richmond, Chicago and Dallas reported that demand for temporary staff decreased. Boston and Cleveland noted that seasonal hiring has been scaled back at retail stores. Several businesses in the Atlanta District reported that layoffs accelerated and hours declined. Chicago noted that further weakness in the demand for labor was expected in a number of sectors. Dallas reported that job cuts were particularly pronounced in the manufacturing sector. San Francisco reported job cuts and hiring freezes across a wide range of industries. However, demand for skilled labor remained strong in Chicago, contacts in Boston reported difficulty filling open positions in some professions and Minneapolis cited difficulty finding skilled workers in some areas.

Wage pressures were largely subdued. Richmond reported that wages for temporary employment remained unchanged, while wages in the retail sector declined. Aside from health care and other high-skill technical positions, most contacts in Atlanta suggested that wage pressures continued to diminish. Business operators in the Minneapolis District indicated that they expect only modest wage increases in their communities during 2009. Chicago, Kansas City and Dallas reported minimal wage pressures. In San Francisco, the region's few open positions have been attracting large numbers of applicants, thereby alleviating upward wage pressures.

District reports characterized price pressures as easing in light of some decreases in retail prices and declines in input prices, particularly for energy, fuel, and many raw materials and food products. In the New York District, firms across a wide range of industries reported that their selling prices have leveled off, while prices paid have decelerated. Philadelphia noted that reports on input costs and output prices showed a general decline. Cleveland reported that transportation surcharges were removed for some contacts. In Atlanta, most District contacts reported that they did not plan to raise output prices due to lower input costs and weaker demand. A manufacturer in Minneapolis noted success in passing along input cost increases to customers, but will likely lower prices going forward. Manufacturers in Kansas City reported a sharp deceleration in raw materials prices. Many contacts in Dallas reported that they resisted price-cutting pressures from their customers, but that they expected to lower prices over the next several months. San Francisco noted declines in the prices of transportation services. A number of District reports mentioned that retailers were widely discounting prices in anticipation of a slow holiday sales season.

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Last update: December 3, 2008