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Economic activity in the Fourth District weakened somewhat since mid-April. Reports from factories show an appreciable decline in production and new orders. Residential construction remains weak, while commercial and industrial building decreased. Commercial and residential builders reported that project financing is very difficult to obtain. On balance, sales by District retailers were stable. New motor vehicle sales slowed, while purchases of used vehicles showed a modest improvement. Coal production fell substantially, with little change noted in oil and gas output. Freight transport volume remains at low levels. Refinancing applications for residential mortgages remain very strong, though other types of consumer lending were characterized as stable. Commercial and industrial lending activity is mixed. Core deposits grew strongly.
Employment declines were seen in manufacturing, commercial construction, and energy. Staffing firms reported a falloff in job openings. Given the weak labor market, wage pressures are contained. For the most part, input and product prices were stable or declining. Capital spending has been frozen or trimmed back to mainly critical maintenance projects.
Reports from District factories show that production had either stabilized at low levels or declined further during the past eight weeks. Almost a third of our contacts noted a downward trend in new orders. On a year-over-year basis, factory output fell sharply. Manufacturers expect demand will stay below 2008 levels through the remainder of 2009. A majority of steel producers and service centers reported that the sharp decline in shipping volume is showing signs of leveling off, but volume remains at depressed levels. The only end market cited as showing some stability is defense. Most respondents anticipate a bottoming out in the third quarter, although the steel industry is not expected to turnaround through year's end. District auto production showed a small rise during April on a month-over-month basis due to an increase in foreign nameplate output. On a year-over-year basis, both domestic makers and foreign nameplates experienced a sharp drop in production.
Most of our contacts reported that their capital budgets are frozen or have been cut back significantly. Some manufacturers told us that they are limiting expenditures to critical maintenance projects. Capital spending is expected to stay at depressed levels until the economy turns around. For the most part, raw materials prices and product pricing were stable or declined, and little inflationary pressure is expected during the next 12 months. A majority of our respondents made further reductions in payroll costs through layoffs, wage cuts, and reductions in production hours. Predictably, wage pressures are contained.
Although the residential construction industry remains weak, most builders are more optimistic than earlier in the year. A majority of survey respondents reported an uptick in sales activity and a significant boost in Internet and foot traffic since our last report. However, an equal number noted that their sales are also down on a year-over-year basis. Most builders are finding it very difficult to obtain financing and believe the existing credit environment will impede a recovery in the housing industry. Builders expect that activity will remain at current levels for the next few months, but are hopeful that a sustained pick-up may be forthcoming by year's end. A majority of builders reported dropping the list prices of homes between 3 and 10 percent during the past couple of months, with little change in discounting. General contractors continue to operate with skeleton crews, and subcontractors are readily available at competitive prices.
Reports on nonresidential construction activity were mixed, but leaned toward the downside. Builders involved in public works projects were more positive in their outlook than those in commercial and industrial development. In general, backlogs and inquiries are down significantly on a year-over-year basis. We heard numerous reports of difficulties in obtaining financing that resulted in some projects being delayed or shut down. Looking forward, most commercial builders do not see conditions improving during the next few months. Construction materials prices are stable to declining, while subcontractors are readily available at very competitive rates. A few general contractors reduced their workforce since our last report.
Reports showed that April sales for District retailers were mixed on a month-over-month basis, though none of our survey respondents indicated a major shift in activity. Further, most retailers expect little change during the third quarter, with the exception of food sellers, who anticipate a rise in sales. On balance, vendor and retail pricing has been stable. Accounts from auto dealers indicate that new vehicle sales slowed during the past few weeks, while purchases of used vehicles showed a modest improvement. Most dealers believe that until the major issues affecting the auto industry are resolved, they will not experience a sustained increase in new vehicle sales. On the whole, there has been little change in staffing levels at retailers and auto dealers. Capital expenditures by retailers remain on plan, but have been trimmed back from 2008 levels.
Demand for commercial and industrial loans is decidedly mixed, with several community bankers commenting that they continue to attract business from regional competitors. In general, interest rates on business loans are holding steady. On the consumer side, refinancing applications for residential mortgages remain very strong, as interest rates stayed low. Other types of consumer lending were characterized as stable, with little change in loan pricing. Some survey respondents reported increased activity in auto loans, especially for used vehicles. Core deposits have risen sharply, even as competition for deposits has lessened. On balance, credit quality for consumer and business loan applicants has deteriorated slightly. Most bankers reported an increase in the number of loan delinquencies, especially those tied to real estate. Higher lending standards remain firmly in place, with no easing expected. There has been little change in staffing levels, though some banks reported cutting the number of hours worked and delaying the hiring of replacement workers.
Coal executives reported production declines, and they do not see a turnaround until electric utilities work through their excess coal inventories. Little change in oil and gas production was reported, though drilling activity has declined substantially in most regions. Coal prices have dropped sharply, while natural gas prices remain depressed and oil prices are beginning to rise. Prices paid for production equipment and materials were stable to declining. Capital spending by coal producers has been cut back and is restricted to some critical maintenance projects, while expenditures by oil and gas producers remain as projected. We heard several reports of workforce reductions and cuts in overtime.
Freight transport executives reported that shipping volume remains at low levels; however, the drop-off experienced earlier this year has abated. On average, shipments are down substantially on a year-over-year basis across all market segments. Any recent uptick in business was attributed to seasonal factors. Most survey respondents expect activity to stay at current levels through at least the third quarter of 2009. Shipping rates remain competitive, while vendor prices show little movement. Capital spending is below 2008 levels, and expenditures are restricted to replacement only. On the labor front, hiring is limited to driver turnover, and we heard a few reports of wage cuts or freezes.