March 6, 2002
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Prepared at the Federal Reserve Bank of Boston and based on information collected before February 26, 2002. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of the Federal Reserve officials.
A majority of Federal Reserve districts report some signs of improvement in economic conditions in January and early February. The Boston, Philadelphia, Richmond, Atlanta, Minneapolis, and San Francisco districts note some pickup in activity, Chicago cites a more positive tone, and Kansas City and St. Louis say that economic activity is weak, but there are some bright spots. Cleveland indicates that although some positive signs continue to emerge, overall business conditions in the district have neither improved nor deteriorated compared with the end of last year. New York reports mixed signals, and Dallas notes continued weak activity.
Most districts say that manufacturing activity is generally weak, but selected industries in some areas are showing more positive results. Boston, New York, Philadelphia, Atlanta, Dallas, Richmond, Kansas City, and San Francisco report modest improvements in retail sales recently compared with the end of last year. Retail results were more mixed in the other districts. Districts indicate that residential real estate markets are generally stronger than commercial markets. Reports on demand for bank loans are mixed across the districts. Warm, dry weather figures prominently in agricultural reports. Warm weather and the slow global economy have contributed to weaker energy demand.
Labor markets continue to be slack in most districts, with many citing business contacts who have suspended bonuses, frozen wages, or skipped annual salary increases. However, contacts at temporary employment firms in several districts suggest employment is bottoming out, and new hires in selected occupations are said to be in short supply. While wage and price pressures are described as "subdued" to "largely nonexistent," business contacts in many districts mentioned rising health insurance costs. Firms in most districts indicate that their purchase and selling prices are generally stable, but Dallas reports upward pressure on services prices and declining prices for chemicals and paper, while Cleveland notes an increase in spot market prices for steel.
Wage and price pressures in the retail sector are virtually nonexistent. Retail employment is said to be stable in Boston, but down in the Richmond and San Francisco districts. Most districts indicate that retail contacts expect flat to slightly increasing sales during the first half of 2002; only retailers in the St. Louis and Philadelphia districts expect somewhat stronger sales growth during this period. The Boston, Cleveland, and Kansas City districts say that retailers expect sales growth to resume at a modest pace during the second half of 2002.
Cleveland and Chicago report a pickup in automotive production in response to higher demand; decreases in other districts were said to be due partly to winter storm conditions. Boston, Chicago, Dallas, and San Francisco note stabilization or slight improvement in demand for high-tech products, which their contacts attributed largely to lean finished goods inventories in these sectors. St. Louis and Dallas indicate that petrochemical and oil refinery production has been sluggish. Reports on most other industries are mixed, with increased production in some parts of the country and decreased production in others.
Throughout the nation, manufacturers are said to be experiencing flat or declining costs for materials and energy. Selling prices are reported to be mostly flat, but several districts mention modest increases in steel prices from low levels.
Some districts comment that manufacturers are no longer cutting back on labor to the same degree they did in 2001. For example, Cleveland mentions that manufacturing employment has fallen but that widespread layoffs in steel and aerospace appear to have subsided. Manufacturers in the Philadelphia and Richmond districts also are said to be reducing regular employment but holding steady or increasing the length of the workweek.
Conditions in the temporary labor market continue to be slack in most reporting districts, but the worst seems to be over. District reports suggest that widespread layoffs have subsided and demand for workers appears to be stabilizing. The Richmond district is the most upbeat, with reports of strengthening demand for temporary workers in recent weeks. Atlanta notes improvement in outplacement activity, even though labor market conditions remain weak. Other districts indicate that ample supplies of labor are still readily available, although certain areas of employment in some districts bucked the sluggish trend. The legal industry in New York exhibited strong demand for temps; employers in the Richmond district are seeking light industry workers and customer service representatives; and, in Dallas, demand was strong for administrative and clerical positions, and in the banking and retail industries and some professional services.
Banking and Finance
Real Estate and Construction
Residential markets remained steady or strengthened during the last two months. Home sales and demand for houses are reported to be strong in the New York, Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco districts. Lower-priced home sales are especially strong, while demand for the high-end segment of the market has weakened in a few districts. New York, Philadelphia, Chicago, and Minneapolis note increased home sale prices compared with a year earlier. New home construction was unchanged or increased in Cleveland, St. Louis, and Minneapolis, but was lower than a year ago in Kansas City.
Agriculture and Other Natural Resources
According to the Atlanta and Dallas districts, the second warmest U.S. weather on record for November through January plus global economic weakness have damped demand for heating oil and natural gas and have kept prices low. Minneapolis reports that drilling activity has fallen slightly in recent weeks, while Kansas City notes that the district's count of active oil and gas drilling rigs remains near the two-year low hit in late 2001. In the Dallas district, energy activity shows signs of bottoming out and stocks of crude oil, heating oil, and natural gas are all well above last year's levels. Because firms storing natural gas will not want to hold it over the summer, many Dallas contacts expect significant downward pressure on natural gas prices this spring. In the case of mining, Minneapolis iron ore production is up slightly from late 2001 levels and is nearing more normal levels. In Kansas City, higher coal prices have encouraged increased activity.