September 6, 2006
|Skip to content
Prepared at the Federal Reserve Bank of New York and based on information collected on or before August 28, 2006. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Reports from the twelve Federal Reserve Districts indicate that economic activity continued to expand since the last report, but five Districts indicated deceleration while the remaining seven reported little change in the pace of growth. Some slowing in economic growth was seen in the Boston, New York, Philadelphia, Kansas City, and Dallas Districts, though Dallas still characterized growth as strong. Most other Districts reported continued modest growth, though Atlanta described activity as "mixed", Richmond observed that growth was "slow," while San Francisco noted a "solid" growth pace.
Consumer spending increased slowly in most Districts, weighed down by sluggish sales of vehicles and housing-related goods. While a number of districts noted some bloating in automobile inventories, most non-auto retailers indicated satisfaction with inventory levels. Tourism was generally characterized as steady but relatively strong. Reports on the service sector varied by industry and by district: some found the trucking and information technology industries to be relatively strong, but others provided mixed reports on air transportation and health care. Manufacturing activity continued to expand in all districts, despite pockets of weakness mostly related to autos and residential construction. Reports on real estate and construction were uniformly weak for the residential sector, but fairly widespread strength was recounted in the commercial sector. Financial institutions reported some softening in loan demand, especially for home mortgages, but noted that credit quality was still favorable. Drought-like conditions in much of the nation have hampered crop production and livestock while energy production remained at a high level.
Labor markets were mostly described as steady since the last report, with scattered labor shortages and associated upward wage pressures noted in a number of Districts, especially for workers with specialized skills. Widespread increases in the prices of energy and certain other commodities persisted since the last report, though most of these increases do not appear to have passed through to finished consumer goods.
Consumer Spending and Tourism
Aside from automobiles, retail inventories were generally reported to be at favorable levels, where specified--in the Boston, New York, Atlanta, Chicago, and St. Louis Districts. Kansas City reported a slight decline in the share of store managers satisfied with inventory levels. However, excessive vehicle inventories were reported in the Philadelphia, Atlanta, Chicago, and St. Louis Districts, and contacts in the Kansas City District anticipate a build-up of vehicle inventories in the months ahead.
Tourism was, on balance, little changed from the last report. The New York, Atlanta and San Francisco Districts indicated continued high levels of tourism activity. Activity was described as mixed in the Richmond and Chicago Districts and as weaker in the Minneapolis and Dallas Districts.
Factory activity was reported as declining in some sectors but increasing in others. Several Districts reported a decline in activity in the motor vehicle industry, although Cleveland noted that some of this decline was likely seasonal; Chicago said that heavy-duty truck production and demand for heavy equipment continued to be strong. Steel demand also remained strong according to the Cleveland and Chicago Districts. Activity was reported as rising in aircraft and defense sectors. Reports of slowing in activity related to residential construction and housing-related products were widespread, although demand related to non-residential construction activity was reported as improving. The production of apparel was also cited as having slowed. Energy-related manufacturing activity continued to rise strongly, and capital goods output was reported as generally growing in most Districts.
Real Estate and Construction
Relatively flat or declining home prices were noted in the New York, Richmond, and Kansas City Districts, and decelerating prices were reported in the Philadelphia and San Francisco Districts. The high end of the market was described as particularly weak in the Richmond, Chicago, and Kansas City Districts, as well as parts of the Minneapolis District. In contrast, the high ends of both the Dallas District's housing market and the New York District's co-op and condo market were reported to have experienced less softening than the more moderately priced segments. One area of relative strength in residential real estate has been the apartment market--of the three Districts reporting on this, New York and Chicago both indicate fairly strong demand for apartment rentals since the last report, while Dallas noted continued strong demand for condominiums.
Commercial real estate markets were uniformly described as strong and, in most cases, increasingly so. Office markets showed noticeable signs of improvement in the Boston, New York, Philadelphia, Atlanta, Chicago, Minneapolis, Kansas City, Dallas and San Francisco Districts. However, market conditions were described as mixed in the Richmond and St. Louis Districts. The reports on markets for industrial space were not as uniformly positive: Philadelphia, Richmond, and Atlanta reported some firming, whereas Minneapolis noted some softening; industrial markets were described as generally steady in the New York and St. Louis Districts.
With widespread tightening in commercial real estate markets, most Districts also reported increases in commercial development and construction. Increased office construction was reported in the Boston, Philadelphia, Atlanta, Minneapolis, Dallas, and San Francisco Districts. Minneapolis also reported a pickup in industrial construction while Cleveland and Dallas reported increases in retail development. Public construction activity was described as strong in the Dallas and San Francisco Districts.
Banking and Finance
Overall credit quality was generally described as good, and delinquency rates were little changed in most Districts, though a few noted scattered increases. The New York and Philadelphia Districts reported modest increases in delinquencies on home mortgages, and Cleveland noted a slight increase in the commercial segment. Credit standards were reported to be steady to slightly tighter.
Agriculture and Natural Resources
The demand for oil and natural gas was reported as continuing to be robust, and facilities were operating near capacity. But several reports indicated some softening in natural gas prices. Drilling and exploration activity was reported as rising slightly, but constrained by capacity constraints, with the Dallas District noting that some drilling activity had shifted away from natural gas and toward oil. Mining activity was reported as robust.
Wage pressures were reported in a number of Districts, though they were most often limited to certain sectors and most pronounced for workers with specialized skills. Overall increases in wage pressures were mentioned in the Philadelphia, Chicago, Minneapolis, Kansas City, and Dallas Districts. A number of other Districts reported sharp wage increases or wage pressures for such workers in occupations that are in short supply or for workers in particular industries, such as information technology (Boston), trucking (Cleveland), retail trade (Chicago), and financial and health services (San Francisco).