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The economy in the Fourth District has shown a few signs of improvement since our last report, though overall activity is sluggish and the recovery remains fragile. Reports from factories indicated that production was steady to up slightly, with increases being attributed to new orders and seasonal adjustments. New home sales showed a modest improvement, while commercial and industrial construction continued at a slow pace. Credit availability remains a major issue for residential and commercial contractors. Sales by District retailers were flat to up slightly. New motor vehicle sales fell since the "cash-for-clunkers" program ended, whereas purchases of used vehicles improved. Coal production declined, with little change noted in oil and gas output. Reports indicated an uptick in freight transport volume. Demand for new commercial and industrial loans was soft, while consumer lending was flat to down. Core deposits continued to grow substantially at most banks.
The only industries reporting notable employment reductions were commercial construction and coal mining. Staffing firm representatives had mixed responses when asked about the number of new job openings. However, a majority said that they received more requests for temps rather than permanent employees. Given the weak labor market, wage pressures are contained. We heard several reports of an uptick in steel prices. Otherwise, raw materials and product pricing were relatively stable. Business fixed investment remains at reduced levels, with little change expected in the upcoming months.
Most reports from District factories showed that production was steady to up slightly during the past six weeks, with increases being attributed to new orders and seasonal adjustments. On a year-over-year basis, factory output remains depressed. A majority of our contacts expect output to remain at current levels or show a gradual improvement going into 2010. Shipments by steel producers and service centers held steady or increased slightly, with reports indicating a small uptick in demand from a wide range of industries. Our steel contacts expect shipments will track seasonal trends, but at reduced levels, through the end of the year. District auto production rose substantially during August on a month-over-month basis. Increases can be attributed to beginning production of 2010 models, restocking dealer inventories, and the aftermath of the GM and Chrysler restructurings. Production of both domestic and foreign nameplate vehicles in the District remained well below year-ago levels.
A majority of our contacts said that they are in the process of further reducing inventories or are not replenishing existing stocks. Capacity utilization remains below historic norms, with little change noted over the past six weeks. Capital expenditures continue to be substantially below pre-recession levels, and only modest adjustments are expected in the upcoming months. Reports show that other than an uptick in the cost of steel (especially stainless), raw materials and product pricing was relatively stable. On net, there was little change in staffing levels, and wage pressures are contained.
A majority of home builders we contacted said that sales improved slightly during the past six weeks, and are comparable on a year-over-year basis. Entry-level sales are doing particularly well, while the high-end market is sluggish. Looking forward, builders see new home construction proceeding at a slow pace. They are also very concerned about credit availability and the withdrawal of the first-time home buyer tax credit. Many of our contacts reported that they are unable to obtain financing to build any spec homes. There has been little change in the pricing (list and discounting) of new homes during the past few months, while materials prices were stable. General contractors continue to operate with skeleton crews, and subcontractors are readily available at competitive rates.
Commercial and industrial construction continues to be sluggish, though activity in public works projects has picked up. All of our respondents said that business has fallen on a year-over-year basis. Inquiries are coming in at a much slower pace, while backlogs are down substantially for nearly all builders. Most contacts expect construction activity will be weak in the upcoming months, and it may be a year before a recovery begins. We continued to hear numerous accounts of difficulties in obtaining financing for private-sector projects. For the most part, construction materials prices were stable. A majority of our contacts reported reducing the size of their workforce during the past six weeks, while subcontractors are charging significantly lower rates.
District retailers reported that sales from mid-August through mid-September were flat or had improved slightly on a month-over-month basis, while remaining below year-ago levels. Reports show that consumers continue to focus on purchasing necessities rather than discretionary items and are very price sensitive. Retailers' expectations for fourth-quarter sales were decidedly mixed. Vendor and retail pricing has been relatively stable, though we heard two reports of some downward pressure on core food items. Retail inventories continued on the lean side. Reports from auto dealers indicated that new vehicle sales dropped since the cash-for-clunkers program ended, with half of our contacts characterizing sales decline as modest. In general, purchases of used vehicles have improved since cash-for-clunkers was withdrawn. Vehicle inventories remain low. Most dealers expect future sales to track seasonal trends, but at a lower level. All of our contacts commented that new vehicle purchases are heavily dependent on incentives and promotions. Difficulty in obtaining credit remains a serious issue for consumers and dealers. On balance, there has been little change in staffing levels or labor costs at retailers and auto dealers.
New demand for commercial and industrial loans was soft during the past six weeks. However, several bankers reported a rise in refinancing existing debt that was turned away by other institutions. Some large, regional banks are seeing increased pay-downs and lower overall volumes. Interest rates and spreads were steady to increasing. On the consumer side, loan demand was characterized as flat to down, with part of the decline caused by the withdrawal of the cash-for-clunkers program or other bank promotions. Reports on residential mortgage applications were mixed, with some improvements credited to falling rates. Core deposits continued to grow substantially at most banks. About half of our contacts said that they have tightened lending standards even further, especially for loans tied to construction. Credit quality of loan applicants has deteriorated somewhat since our last report, more so on the business side. There continues to be a slight upward trend in delinquencies, especially for commercial loans and loans tied to real estate. For the most part, workforce sizes are stable and no wage pressures were reported.
Coal executives reported a continuing sharp decline in production on a year-over-year basis, with no turnaround expected in the upcoming months. One executive said that contract prices for coal have dropped 50 percent from a year-ago. Little change in oil and gas output was reported, while drilling activity was steady or slowly declining. Most reports showed that prices received for oil were little changed, while those for natural gas were up slightly. For the most part, the cost of production equipment and materials has stabilized. However, we heard two reports of a rise in fuel prices. Capital spending by coal producers remains on hold, while expenditures by oil and gas producers stayed on plan. Employment levels in the oil and gas industry were stable, while coal executives reported additional workforce reductions.
Almost all freight transport contacts reported a slight improvement in shipping volume during the past six weeks, with several commenting that volume growth has been uneven and shipping rates remain competitive. Although no end market stands out, several contacts noted increases in auto-related shipments. Looking forward, a majority of our contacts expect slight incremental improvements in volume. Capital spending remains at low levels. Nonetheless, two trucking executives reported that they have committed to purchasing a substantial amount of replacement equipment during the last quarter of this year and the first quarter of 2010. On the labor front, most hiring is limited to replacements.