Reports from Twelfth District contacts indicated slow but steady improvement in economic activity in March and early April. With the exception of fuel prices, respondents reported stable prices for most consumer goods and services and little movement in wages. Consumers continued to respond to heavy discounting in the travel and tourism sector, which boosted economic conditions in travel dependent states. Conditions in manufacturing strengthened slightly in March, and contacts noted that inventories are now in balance given expected sales. District agricultural producers reported a slight improvement in conditions in recent weeks. Commercial real estate markets continued to weaken, while demand for residential real estate remained fairly strong. Bank contacts reported increasing strength in loan demand, primarily from the consumer side of the market.
Prices and Wages
District contacts reported little change in consumer prices in March and early April, but noted an increase in the cost of producers' inputs, particularly fuel. Contacts noted that labor markets remained tilted in favor of employers, with ample labor supply and little upward pressure on wages and salaries. Even in sectors with tighter labor markets, respondents reported that wage increases were constrained due to rising health care and worker compensation costs.
Retail Trade and Services
District respondents reported stable conditions in retail trade and services, with demand approximately the same or slightly weaker than the fourth quarter of 2001. Contacts noted that retail inventories generally were in balance given current low levels of demand, which remained low relative to year-earlier levels. Respondents noted that the heavy use of discounting and financing incentives in the retail sector in the fourth quarter generally has ceased and prices were flat during March and early April. Prices in communications services remained low; some respondents attributed this to over-capacity in broadband networks.
Demand in the travel and tourism sector continued to pick up across the District, boosting growth in states that are travel dependent, such as Nevada and Hawaii. Moreover, there continued to be heavy discounting in travel and tourism industries. Despite the recent pickup, hotel occupancy, air travel, and car rentals reportedly remain below last year's values.
District contacts noted further signs of stabilization in the high-tech manufacturing sector in recent weeks, as a pickup in new orders and sales helped many factories draw down inventories, putting them in line with future expected sales. In fact, respondents reported that some manufacturers have begun to rebuild inventories cautiously. Improved demand and inventory balance boosted capacity utilization among makers of semiconductors. Utilization in the biotechnology sector, which, according to respondents, remained relatively high during the manufacturing slowdown, continued to be high. Prices in the high-tech sector were mixed; prices of lower-end products remained flat or declined slightly, while prices of newer and higher-end products experienced some gains, improving the profit outlooks for those producers.
While a number of respondents noted that the recently enacted economic stimulus package soon could bolster fixed investments, most expect the impact to be minimal until demand and companies' cash flow positions improve. District contacts continued to express concern that the strong dollar is damping export demand for manufactured goods.
Agriculture and Resource-related Industries
Respondents noted that demand for goods across the agricultural sector improved during March and early April. Contacts reported that inventories are generally in balance given current demand, though inventory levels were still below year-earlier levels. Contacts also noted that agricultural prices improved slightly in recent weeks.
Real Estate and Construction
Conditions in District real estate markets continued their trend in March and early April, with commercial markets growing weaker and residential markets gaining strength. Respondents throughout the District reported further increases in vacancy rates and declines in lease prices for commercial property. Contacts reported little, if any, new commercial development as builders halted construction awaiting improvement in demand for commercial space.
In contrast, demand for residential real estate in the District remained solid. Respondents reported that in the most recent survey period, home prices rose in some District states while remaining unchanged in others. Contacts noted that construction of entry-level and median-priced homes is on the rise, while construction of higher-end homes is flat.
District financial conditions reportedly changed little from the previous survey period. As in the previous period, strict borrowing requirements and the uncertain economic environment have reduced the incentives for business to seek loans. Demand for consumer loans has remained strong.