|Skip to content
Eleventh District economic activity continued to expand at a brisk pace in March and April. Demand for business services remained quite strong, and energy activity was up. Retailers reported generally good sales growth, and auto sales were strong. Demand increased for most manufactured products, but there were signs of slowing for some construction-related inputs. Residential construction activity remained quite strong, but nonresidential activity continued to soften. Financial service contacts reported little change from the last report. Agricultural conditions remain dry in many areas.
Price pressures were mixed. Most energy and construction prices had fallen but some manufacturing and most service sector prices were up. The price of crude oil has declined steadily since peaking on March 7. Gasoline prices didn't peak until March 20 and are now falling in response to lower oil prices. One factor reported as keeping gasoline prices from falling along with oil prices was low levels of output. Refiners were reluctant to buy crude with prices falling rapidly. As oil prices stabilized near $25 per barrel, the presumed OPEC target, refiners have been more aggressive in buying crude and producing products to take advantage of better profit margins. Some petrochemical prices have fallen, such as for spot ethylene, in response to increased capacity. Other petrochemical price increases continued to be passed through to selling prices, despite falling oil prices, most notably in polystyrene and polypropylene. Natural gas prices have been unseasonably high due to an unusual number of planned and unplanned coal-fired and nuclear-fired electric generator outages, as well as unusually cold April weather in the Northeast. Storage is building more slowly than normal due to strong demand, and summer price spikes for gas are a possibility as weather heats up. A new pipeline from Canada is expected to boost imports and relieve price pressures before next winter, however. Contacts in the construction industry continued to report that cost pressures appear to have peaked, and noted that this has not filtered to residential selling prices yet, but said competition will push downward pressure through to selling prices soon if demand slows. Computer manufacturers noted upward price pressure on parts that have been in short supply, although this "has not been dramatic." Computer selling prices stabilized, after falling for several months. Paper producers reported increases in input costs, with one saying prices were up 10 to 15 percent across the board. Although prices recently leveled off, metals producers noted some increases in selling prices as a result of higher input prices, including those for energy and scrap metal. Import competition is moderating price increases for some aluminum products.
Imports are also pushing down selling prices for concrete, and prices are expected to decline as much as 15 percent further, despite relatively high fuel costs. Selling prices for timber and lumber have softened and are expected to decline further.
Generally, labor markets remained tight, except those for some types of construction workers. Temporary service firms said labor markets are tighter than ever, and are concerned that an inability to find workers will cut into business. Fees and wages are increasing at some of these firms. Legal firms continued to report significant wage increases. One firm raised associates' salaries three times in the last 120 days, another said associate salaries increased 28 percent since last year, and contacts say they're permitting casual-dressing to stay competitive. High-tech companies reported that labor markets for skilled workers continued to be very tight, and one respondent noted that this has led to a rash of acquisitions of small startups. Metals manufacturers said the labor market for low-end workers remained tight. Skilled workers were also in short supply, with contacts noting difficulty finding truck drivers, maintenance workers, engineers, and draftsmen. A construction contact noted downward pressure on labor costs, and said framing costs have dropped 30 cents per square foot as a result.
Manufacturing activity was up for most products, although there was some slowing for cement, paper products, lumber and other "early construction" wood products. Demand increased for primary metals, apparel products, and clay and glass products used in construction. Fabricated metals producers said sales were strong to construction firms and booming sales to telecommunications and semiconductor firms. Orders for high-tech equipment accelerated over the last six weeks, with demand from consumers stronger than from businesses. Contacts reported that demand from Asia and Latin America picked up strongly. Communication devices and laptops posted the strongest growth. Computer manufacturers reported shortages of chip sets and DVD drives, and one contact said they could have sold more laptops if they could have made more. Capacity utilization at Texas Gulf Coast refineries surged in early April.
Demand for business services remained quite strong and nearly all contacts said sales were better than at this time last year. Temporary firms said almost all areas were performing well, including manufacturing, energy and particularly high-tech. Legal firms also reported strong demand, with increased bankruptcy and less litigation work over the last six weeks. Transportation firms also reported strong demand. Trucking firms said activity had been particularly strong.
Retailers reported generally good sales growth, although the late Easter is providing some uncertainty about comparisons to last year. Contacts expressed concern that stock market volatility would dampen consumer confidence, but noted that there was no apparent slowdown in sales during the week following the Dow's drop. Auto sales have been very strong.
Lending activity was mostly stable, with a few contacts reporting slightly slower C&I loan demand. A large bank said their loan committee recommended tighter monitoring of margin trading accounts. Generally, respondents said interest rates are not high enough to stem loan growth. However, they said increasing interest rates are negatively affecting margins because deposits reprice faster than loans.
Construction and Real Estate
Residential construction and real estate activity has been strong over the last six weeks, with one homebuilder reporting double-digit sales growth compared to last year. Contacts were somewhat less optimistic because they are concerned that recent stock market weakness will dampen consumer confidence and sales. Commercial construction and real estate activity has been slowing, with contacts reporting fewer transactions and developments. Office leasing has also slowed. One contact said that interest costs are now affecting deals.
Domestic and international drilling activity increased, spurring demand for oil field machinery and services. While the increase was partly due to seasonal factors, contacts were more optimistic that oil service and machinery markets are improving slowly because the depth and complexity of drilling activity is slowly improving. Domestic drilling was up 34 rigs during the first two weeks of April, after remaining stagnant from November to late March. New drilling was for both oil and gas, the first signs of growing interest in oil-directed drilling since last fall. The market remains subdued relative to the price of oil and natural gas. Confidence that the recent OPEC agreement can hold the price of oil near $25 per barrel might provide the incentive for a significant increase in drilling activity. However, contacts warned that an increase in domestic activity beyond 825-850 rigs is unlikely due to personnel and equipment shortages. The U.S. rig count currently stands at roughly 810 rigs.
Cool temperatures and rains slowed crop development and land preparation. While rains delayed activity in some areas, soil and cattle benefited from the moisture. Insufficient moisture continues to hamper activity in other areas. In areas of deficient rainfall, cattle movement continued, supplemental feeding remained necessary and stock water was limited. In a few areas, some land previously held out of production by the government CRP program was being returned to crop production. The onion crop is reported to be high quality and high yield.