Prepared at the Federal Reserve Bank of Dallas and based
on information collected before November 22, 2004. 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 generally paint a picture
of continued economic growth from mid-October to mid-November, with a number
of areas improving. Eleven Districts reported expanding economic activity, with
New York, Philadelphia, Atlanta, and Dallas noting a pickup in the pace of expansion
since their last reports. Minneapolis indicated that the expansion in that District
was broad-based, and San Francisco described the region's activity as solid.
The Richmond, Chicago, and Kansas City Districts saw moderate gains in economic
activity while St. Louis viewed the gains there as modest. Only the Cleveland
District reported little change in economic activity.
Overall consumer spending was uneven since the last Beige Book, with only a
few Districts reporting stronger retail sales and many noting mixed, flat or
slower sales. Automobile sales were flat to down across most Districts, and
several Districts reported higher dealer inventories than desired. In contrast,
manufacturing and service sector activity increased across the country. Residential
real estate activity generally remained at high levels, but continued to show
signs of cooling in a number of Districts. Nonresidential activity, while still
sluggish in many areas, appeared to be turning the corner in several Districts.
In credit markets, business lending was strengthening, but the pace of consumer
and mortgage lending was mixed across the country. Contacts in the securities
industry reported increased inflows into stock mutual funds and noted a pickup
of stock issuance and merger-related activity. Many agricultural producers across
the country said they were looking forward to large or record crop production.
Energy-related activities remained strong.
Consumer spending was uneven from mid-October to mid-November. Retail sales
increased in the Atlanta, Kansas City, Minneapolis and Philadelphia Districts
and were "solid" in the San Francisco District. Sales were mixed in the Boston
and Dallas Districts but were sluggish or lower in the Chicago, New York, Richmond,
and St. Louis Districts. Retailers in the Dallas, Kansas City and New York Districts
reported that demand for premium merchandise has been noticeably stronger than
that for lower-priced lines, with some contacts suggesting that lower-income
households might have been more greatly affected by high energy prices. Inventories
appear to be in line with sales, with only the Boston District reporting that
retail inventory levels were up slightly.
Automobile sales were flat to down across most Districts. The Chicago, Cleveland,
Dallas, Kansas City and San Francisco Districts reported that dealer inventories
were higher than desired.
Manufacturing activity increased across the country. Nine Districts reported
a pickup in production, with only the Cleveland, Richmond, and San Francisco
Districts noting that activity was unchanged or expanding more slowly than was
reported in the last Beige Book. Overseas competition continued to weigh on
several industries, but a number of reports noted increased capital investment
and hiring. Manufacturers remained concerned about high energy prices and rising
prices for other inputs.
Orders were strongest for chemicals, food, and products to supply the aerospace,
agriculture, energy, medical, defense and construction industries. Both the
Chicago and San Francisco Districts noted a pickup in bookings for machine tools.
The Chicago and Cleveland Districts reported some slowing in domestic steel
production, in part because of imports. Furniture production weakened in the
Boston, Philadelphia, and St. Louis Districts, but turned up in the Richmond
District. Richmond also reported that the textile business was unseasonably
slow, but demand for apparel and textile products was reported as "robust" in
the San Francisco District and up from three months ago in the Dallas District.
Transportation manufacturing was mixed. The Chicago District reported new
orders for heavy trucks were "at extremely strong levels," with production constrained
by shortages of engines and other parts. Slowing demand for automobiles and
auto parts were seen in the Chicago, Cleveland, Philadelphia and St. Louis Districts.
At the same time, the Atlanta District reported a recent announcement of additional
auto parts manufacturing plants.
Conditions in the high-tech sector also were mixed. The Boston District reported
a considerable softening of orders for semiconductors and related equipment
in the third quarter. In the San Francisco District, sales and orders were unchanged
for semiconductors and other high-tech products, which led to rising chip inventories
and a slight drop in capacity utilization. In contrast, the Dallas District
noted continued growth in production and orders for high-tech products.
Service sector activity was strong or increasing among the Districts reporting
on that sector. Tourism activity was slightly improved across much of the nation.
Demand for workers at temporary employment agencies picked up in the Boston,
Chicago, Dallas, Richmond and New York Districts. Shortages of temporary workers
were reported in the Boston and New York Districts, and the Boston, Chicago,
and Dallas Districts reported an increase in the number of temporary workers
obtaining more permanent positions. Business activity sped up at software and
information technology services firms in the Boston District, while demand for
legal and accounting services was reported as strong in the Dallas District.
Demand for transportation services was reported as robust. Shipping firms in
the Cleveland and Richmond Districts increased rates to offset higher fuel costs.
Seaports in the San Francisco District continued to handle very high volumes,
with delays developing at some ports. Prices for ground and sea transport were
rising in response to bottlenecks.
Construction and Real Estate
Residential real estate activity was still robust in late October and early
November, although some signs of cooling were noted by the Atlanta, Chicago,
Cleveland, Dallas, Kansas City, Richmond and San Francisco Districts.
Commercial real estate markets remained weak, with high vacancies and low--even
falling--rents. Nevertheless, several Districts noted that levels of excess
capacity continued to ebb. Districts reported that nonresidential construction
continues to be at low levels. However, leasing activity was up in the Dallas
and Richmond Districts. The Atlanta and Minneapolis Districts noted lower commercial
vacancy rates, and San Francisco District contacts indicated that office and
industrial vacancy rates were edging down. In contrast, the New York District
reported weakening in commercial markets, where strong leasing activity was
outpaced by an increased availability of space.
Banking and Finance
Overall lending activity was mixed, and credit quality remained good across
the nation in the past few weeks. Business lending firmed in a number of areas,
but residential mortgage lending and refinancing activity softened further.
Lending overall increased in the Philadelphia and Richmond Districts, slowed
slightly in the New York District, and was "well below expectations" in the
Chicago District. The Kansas City and San Francisco Districts reported little
change in loan demand, with the latter District noting that loan demand was
"solid." Deposit growth picked up in the Cleveland, Dallas and New York Districts,
with no reports of changes elsewhere.
Demand for commercial loans strengthened in many Districts, but the Atlanta
District noted that commercial loan demand remained at low levels overall.
Reports on consumer lending were more mixed. Chicago and Philadelphia District
bankers said demand increased slightly for household loans, with notable gains
in home equity lending in the Philadelphia District. Consumer loan demand continued
to be strong in the Atlanta District, and was "steady" in the Cleveland District.
On the other hand, lending declined in the Kansas City and New York Districts.
Residential lending was also uneven across the country. Demand for mortgages
slowed in the Dallas, New York, and San Francisco Districts, but picked up in
the Chicago and Philadelphia Districts while remaining flat in the Kansas City
and Richmond Districts. Refinancing activity slowed in the New York, Philadelphia,
and San Francisco Districts and remained light in the Richmond District.
Overall credit quality remained unchanged or improved. Credit quality improved
in the Chicago District, and continued to be good in the Atlanta, Cleveland,
Philadelphia and San Francisco Districts. The Kansas City, New York and Richmond
Districts reported little or no change in credit and/or lending standards.
The New York and Philadelphia Districts reported a noticeable pickup in the
securities industry since the last Beige Book report. In the Philadelphia District,
investment companies and stockbrokers have received strong cash inflows, and
some securities firms are raising staffing levels. The New York District saw
increased inflows into equity mutual funds, and the investment banking community
reported a pickup in stock issuance and especially in merger and acquisition
Agriculture and Natural Resources
Recent wet weather delayed field work in many areas, but large or record crop
production is anticipated by farmers across much of the country. Above-average
quality and yields, especially for corn and soybeans, were reported by producers
in the Richmond and Chicago Districts as well as in the Kansas City District,
where agricultural lenders anticipate farm income to set record highs this year.
The Minneapolis and St. Louis Districts also reported favorable yield and production
estimates. A record cotton crop is anticipated in the Dallas District, and estimates
of cotton production were revised up in the Atlanta District. The hurricanes
seriously affected production of several Florida crops.
In the Chicago District, livestock producers were benefiting from lower feed
costs. The Dallas District reported strong demand for calves and feeder cattle.
Ranchers in the Kansas City District remained reluctant to expand herds.
Energy activity remained strong, but the pace of growth was mixed. Oil field
activity was up in the Minneapolis and Dallas Districts and at full capacity
in the San Francisco District, but the Kansas City District reported a slight
easing since the previous survey. Several oil and gas pipelines in the Gulf
of Mexico remained off-line because of storm damage.
In the Kansas City District, "About half of the contacts continue to report
constraints on drilling due to labor and equipment shortages. Absent these constraints--which
are expected to persist for at least another six months--contacts believe drilling
could increase by 10 to 20 percent." The Dallas District noted potential for
continued expansion in oilfield equipment manufacturing, oilfield construction,
shallow offshore drilling and some oilfield services, but also saw shortages
of steel products in the oil patch.
Iron ore mines in the Minneapolis District were producing at capacity, with
capital expansion under way. In addition, other mining companies were expanding
and investing in capital equipment in Montana.
Increased cost pressures were reported by firms across the country, particularly
for energy, transportation, food and petroleum-based products. While competition
limited the ability of producers to pass higher costs forward, several Districts
noted that some industries were successful in passing along cost increases.
For example, the Chicago District reported that an increasing number of firms
were able to pass higher input costs along to their business customers. The
Boston District reported that customers had become more tolerant of price increases
that were attributable to rising materials and energy costs.
Retailers have been less successful passing along cost increases than manufacturers,
with most Districts reporting little change in retail prices. Contacts in the
Boston and Chicago Districts posted some price increases at restaurants to offset
higher food costs. Automobile dealers in several Districts have increased their
use of rebates, promotions and sometimes substantial incentives. Makers of IT
products in the San Francisco District reported additional price declines for
some of their goods and services, including an acceleration of price declines
for some types of semiconductors.
Continued cost increases for some building materials were reported in the Atlanta,
Cleveland, Kansas City, Minneapolis, New York, Richmond and San Francisco Districts.
Cement has been in short supply, and prices have risen for both concrete and
cement. Steel prices also rose. While construction-related steel shortages eased
in the Chicago and San Francisco Districts, there were reports of shortages
of specialty steel in several Districts.
A slight cooling in the pace of home sales dampened home price increases in
some markets. Home prices in the Dallas District softened further since the
last Beige Book. The New York District reported that while housing demand remained
strong, prices had leveled off in parts of New Jersey. A slight slowdown in
home sales led to some moderation in home price appreciation in the San Francisco
District. Home prices were up slightly in the Kansas City District and continued
to rise at a steady pace in the Philadelphia District.
Solid U.S. production pushed down prices for corn, soybeans and cotton, but
significant crop damage in Florida pushed up prices for tomatoes, peppers and
other key Florida crops. Contacts in the Chicago District were concerned that
higher fuel and fertilizer costs would partly offset gains in farm income.
Labor markets continued to improve over the past few weeks, with numerous reports
of hiring. The Atlanta, Chicago, Kansas City, Minneapolis and New York Districts
reported increased hiring or improved labor markets. Contacts in several Districts
noted difficulty finding workers for specific occupations, such as accounting,
construction and skilled professionals in the energy industry.
There continued to be little wage pressure in most Districts, although a few
Districts noted that higher benefit costs are pushing up total compensation.
Only the Chicago District reported that overall wages increased at a slightly
faster pace. Temporary employment firms in the Boston and Dallas Districts expressed
concerns about cost increases, particularly for medical, worker's compensation
and state unemployment insurance, and said they were attempting to pass these
cost increases on to customers.
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The First District economy continues to expand. Retailers saw somewhat mixed
results in October and early November, although tourism continues to improve.
Manufacturing firms report business continues to pick up. Demand for temporary
employees as well as for software and IT services is said to be expanding solidly.
Commercial real estate markets remain sluggish.
Retail and Tourism
Most First District retailers cite little growth in October and early November.
Respondents report a slowdown in casual dining compared to previous months and
year-ago levels. Several store chains report sales increases in October and
early November in the 4 percent to 8 percent range year-over-year. Within this
group, however, a seller of health and beauty products says month-to-month comparisons
have been on a downward trend throughout the year, and a clothing retailer says
sales picked up markedly in November. Furniture stores report sales are flat
to down 8 percent compared to last year, and hardware sales are slightly behind
Inventory levels are up slightly according to most contacts. A number of respondents
report increasing vendor prices, particularly for food items, and petroleum-
and steel-based products, but changes in selling prices are reportedly mixed.
Clothing prices declined as lower priced items were included in the product
mix, casual dining prices increased modestly, and increases for other retailers
were minimal. Employment levels are said to be mostly steady, while acquisitions
and seasonal hiring have resulted in some headcount increases. Most respondents
report capital spending is in line with plan, some below year-ago levels and
some above due to store openings, acquisitions, or increased spending on technology.
Travel and tourism revenues in northern New England were reportedly stronger
in September and October than a year earlier, a result of nice weather and long-lasting,
bright foliage. Travelers continue to come mostly from driving distances, while
international travel increases at a moderate pace. According to respondents,
increasing business travel and the opening of several quality hotels have helped
boost tourism revenues in Boston this fall. Occupancy rates and prices are said
to be on the rise.
Most contacted retailers anticipate that sales will improve slowly in early
2005, while some expect no change. Respondents express uncertainty and caution
about rising fuel, energy, and commodity prices, consumers' price-sensitivity,
and declining consumer confidence.
Manufacturing and Related Services
Most First District contacts in manufacturing and related services report that
sales in the third and fourth quarters of 2004 have been ahead of year-earlier
levels and remain on an upward trajectory. Equipment manufacturers serving defense,
medical, automotive, and construction markets are doing particularly well. Some
respondents have been able to capture market share by offering more comprehensive
or innovative products to their customers.
Makers of semiconductors and related equipment report that incoming orders
softened considerably starting in the third quarter. They attribute much of
the new weakness to greater caution among customers serving consumer electronics
markets, and they expect the slowdown in orders to remain in effect until early
2005. Furniture manufacturers and their suppliers also suffered major slowdowns
in the third quarter, but they disagree about whether these markets are likely
to reverse course in the coming months.
Manufacturers report continuing, major cost increases for steel, natural gas,
and petrochemicals. Prices have also risen substantially for copper and paper.
Most respondents say that in recent months their customers have become more
tolerant of price increases attributable to rising materials and energy costs.
Nevertheless, the recent pricing adjustments typically do not compensate manufacturers
for the increases in input costs that they experienced earlier in the year.
Most manufacturers are holding their U.S. headcounts fairly flat except for
acquisitions. Contacts with rapidly growing sales are adding employees, while
those in the semiconductor and furniture industries are laying off. Pay increases
in 2005 are expected to remain in the 3 percent to 4 percent range, but engineering
pay is rising more rapidly. Respondents report difficulties in finding skilled
technical and accounting professionals, as well as skilled machinists and toolmakers.
Manufacturers generally expect their domestic capital expenditures to rise in
the coming year, albeit to varying degrees. The added capital is usually aimed
at improving productivity and developing and manufacturing new products.
Most contacts are at least moderately encouraged by their company's prospects
in 2005. Some express concerns about possible further increases in energy prices,
competitive pressures to reduce selling prices or spend more on marketing, or
the down cycle that has started in semiconductors.
Demand for temporary workers in the New England region grew at a solid rate
in Q3 and early Q4, across a wide range of job types and geographic locations.
The supply of available candidates is reportedly dwindling and is starting to
affect business in some cases. Downward pressure on prices continues, but temp
firms are holding the line or even gaining small increases in some cases. Most
costs are under control, but medical, worker's compensation, and state unemployment
insurance expenses continue to rise. Respondents are largely positive in their
outlook and expect demand growth to settle in at a "moderate but healthy" rate
in 2005. They cite continuing increases in permanent and temporary-to-permanent
job placements and the end of election-related uncertainty as reasons for optimism,
but tightening labor supply, the war in Iraq, and high fuel prices as causes
Commercial Real Estate
Commercial real estate markets in New England remain sluggish. Contacts report
few changes over the past quarter. Although some areas have experienced positive
market absorption, continuing slow job growth in the region has generally failed
to help the already lackluster markets. Boston has experienced the fourth consecutive
year of negative market absorption, its worst streak on record. Office vacancy
rates remain in the mid-teens in Boston, and exceed 20 percent in the suburbs.
Recent mergers have raised vacancy rates by 2 to 3 percentage points, according
to some estimates. While office rental rates have not changed during the past
three months, buyers of office buildings continue to be willing to pay "exorbitant"
prices. Contacts do not expect conditions to improve markedly until the region's
economy strengthens and job growth picks up.
Software and Information Technology Services
Business activity is said to be speeding up at First District software and information
technology services firms. All respondents report positive year-over-year revenue
growth in the third quarter, ranging from single to high double digits. Headcounts
remain flat, with a little hiring in sales and services; almost all contacted
companies have started to raise pay. They say that voluntary turnover is increasing,
indicating the labor market is improving. Capital and technology spending is
reported at the usual level.
Contacted software and IT services companies' overall outlook is cautiously
optimistic. Some respondents have highly positive assessments, reporting increasing
backlogs and strong pipelines, while others are quite cautious, especially in
relatively mature segments such as networking software.
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Second District--New York
The Second District's economy has taken on a somewhat firmer tone since the
last report, though a few areas remain sluggish. Cost pressures persist, but
prices of final goods and services, aside from energy, remain stable. Labor
markets continued to improve, on balance. Manufacturers indicate that activity
remains on a moderate upward trajectory, and most contacts remain optimistic
about the outlook for early 2005. In contrast, retailers report that sales were
below plan in October, though a few note signs of a pickup in early November.
Commercial real estate markets have softened a bit since the last report, but
housing markets remain robust. In New York City, tourism has shown signs of
strengthening in recent weeks, reportedly buoyed by a pickup in both international
and business travelers. Securities industry activity has picked up noticeably
since the last report. Bankers report slight slowing in loan demand, unchanged
credit standards and little change in delinquency rates.
Retail sales remained sluggish in October, with contacts reporting that same-store
sales were little changed from a year earlier--changes ranged from a 4 percent
drop to a 3 percent gain. While most report continued soft demand in early November,
a few note that sales have picked up. In general, retailers indicate that sales
of premium merchandise have been noticeably stronger than sales of lower priced
lines; a number of contacts attribute this to lower-income households being
disproportionately constrained by high energy prices. Also, unseasonably mild
weather in recent weeks has held down sales of cold-weather merchandise. Despite
the sluggish sales, most contacts report that inventories are generally in good
shape. Retailers note that both prices and merchandise costs remain steady;
looking ahead to 2005, apparel costs are expected to decline, as a result of
the lifting of trade quotas on January 1, but prices of major appliances are
expected to rise, reflecting the steep rise in the cost of steel. Most retailers
are hiring about the same number of holiday season workers as last year, though
two major chains plan to increase staffing from 2003 levels.
Consumer confidence was mixed in October. Based on Siena College's survey of
New York State residents, confidence rose modestly, led by a strong pickup in
upstate New York. However, the Conference Board's survey of Middle Atlantic
state (NY, NJ, PA) residents shows confidence slipping in October.
Construction and Real Estate
Housing sector strength persisted in recent weeks. New Jersey homebuilders report
continued strong demand, while prices, though still well ahead of last year,
appear to be leveling off. In older urban areas of New Jersey, however, recent
residential redevelopment has reportedly been met with strong demand, and prices
have appreciated sharply. A contact in the Albany area reports increasingly
robust market conditions, led by strong activity at the high end of the market.
The market for New York City co-ops and condos has been brisk in recent weeks:
one contact reports that volume has been running noticeably higher than a year
ago since Labor Day and that prices are up roughly 5 percent from a year ago;
another contact reports a surge in sales at the very high end (multi-million
dollar homes), and also a further pickup in sales of smaller (1-bedroom and
studio) apartments. Manhattan's rental market has been mixed but generally stronger,
led by the downtown area, where there is reported to be strong demand and a
Office markets have slackened somewhat since the last report. Manhattan's office
market was steady to slightly softer in October, as brisk leasing activity was
more than offset by an increased flow of available space onto the market. Midtown
Manhattan's vacancy rate held steady and asking rents edged up again. However,
downtown's vacancy rate jumped to its highest level this year, and asking rents
dipped. Albany's office market also showed signs of softening, with vacancy
rates up roughly a point from a year ago; also, a jump in prices of building
materials is reportedly making it more costly to refit office space for new
Other Business Activity
A major New York City employment agency, specializing in mid-level office jobs,
reports increased difficulty in finding qualified workers, along with continued
moderate improvement in hiring activity, again led by the financial and legal
industries, where current staffing levels are described as lean. However, there
are reports of weakening employment in the insurance and music industries. Separately,
a contact in the financial sector reports that the insurance industry retrenchment
is partly due to the recent string of hurricanes in the Southeast. However,
the securities industry has seen a pickup in business in the fourth quarter:
increased flows into equity funds, as well as a pickup in new stock issuance
and especially mergers and acquisitions; this has more than offset weakness
in bond issuance. Wall Street firms are reported to be increasing staff, but
little year-over-year increase is expected in bonuses, which are typically paid
Manufacturers indicate steady, moderate growth in business activity, and continue
to express widespread optimism about the outlook for the first half of 2005.
The greatest concern expressed by manufacturers is increased competition from
overseas; a few contacts also indicate that customers have recently been taking
longer to pay their accounts. Among businesses more generally, rising energy
prices appear to be the top concern. Purchasing managers in the Buffalo and
New York City areas similarly report moderate improvement in activity, and fairly
widespread increases in commodity prices.
Tourism has shown increased signs of strength in New York City. Airports report
a strong increase in international arrivals, compared with 2003. There are also
signs of a rebound in business travel. Manhattan hotels report that both occupancy
rates and room rates were running well ahead of a year earlier in October, which
is typically the top month for conferences and business travel. Moreover, bookings
for most of December and next January are reported to be robust, with fewer
hotels offering discounts. An industry contact projects that room rates will
increase 12 percent in 2005, following a 9-10 percent rise in 2004. Attendance
and revenues at Broadway theaters showed signs of rebounding in mid-November,
after falling behind comparable 2003 levels in October and early November.
Small to medium-sized banks in the Second District report somewhat reduced demand
for loans. Declines in residential mortgages and consumer loans were a bit more
pronounced than is typical at this time of year. Demand for commercial credit
was relatively stable, across both the commercial real estate and commercial
and industrial categories. Decreased refinancing activity was reported by two-thirds
of bankers, with fewer than 10 percent of respondents reporting increases. Bankers
report no change in credit standards. Both lending and deposit rates rose across
the board. Finally, bankers indicate virtually no change in delinquency rates
across all loan categories.
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Business conditions in the Third District improved moderately in November.
Manufacturers reported increases in orders and shipments during the month. Retailers
indicated that sales of general merchandise rose in November compared with October
and with November of last year. Auto sales have been steady in recent weeks.
Banks and other lending institutions reported that overall lending continued
on an upward trend, although some noted that residential mortgage refinancing
activity had decreased. Sales of new and existing homes have been steady. Commercial
real estate vacancy rates have shown little change, but rents continued to decline.
Contacts in the Third District business community generally expect economic
activity in the region to expand at its current pace through the winter. Manufacturers
anticipate increases in shipments and orders during the next six months. Retailers
expect sales for the Christmas shopping season this year to exceed last year's
by a moderate amount. Auto dealers expect sales to be level through December.
Bankers believe overall lending will remain on the rise, although they anticipate
a slowing in growth of residential mortgage activity. Real estate agents and
home builders expect home sales to remain close to the current pace. Contacts
in commercial real estate expect the demand for office and industrial space
to rise gradually during 2005.
Manufacturing activity in the Third District increased moderately in November.
Around four out of ten of the manufacturing firms surveyed during the month
posted higher shipments and orders compared with the prior month, and less than
two in ten reported decreases. Order backlogs at area plants were steady from
October to November, but delivery times edged down. Business conditions varied
among the major manufacturing sectors in the region. Growing demand was generally
reported by makers of electrical machinery, measuring and controlling instruments,
chemicals, and primary metals. Some slowing in demand was reported by makers
of furniture, transportation equipment, and paper products.
The region's manufacturers generally expect further gains in business activity.
Around six out of ten of the firms surveyed in November expect their shipments
and orders to increase during the next six months, and less than one in ten
expect decreases. On balance, area manufacturing firms are scheduling increases
in capital spending and planning to add employees. Despite mixed reports on
current conditions among the region's major manufacturing sectors, the outlook
is positive in almost all of them.
Third District manufacturers continued to report rising prices, with about
the same percentage of firms noting increases during November as in October.
Area manufacturers expect further increases in input and output prices during
the next six months. They also anticipate sharp increases in the cost of employee
health benefits for 2005.
Retail sales of general merchandise increased moderately in November compared
with October and with November of last year. Sales gains were noted across most
store types and merchandise lines, although a few merchants reported that sales
of men's apparel have been slow. Store executives expect sales to rise gradually
as Christmas approaches. Most of those contacted for this report expect Christmas
holiday sales this year to exceed last year's by around 4 percent, in current
dollars. They also expect a substantial portion of the season's sales will be
posted in January as shoppers use gift cards received over the holidays. Store
executives generally indicated that temporary hiring for the season is about
in line with last year amid continuing efforts to limit personnel expense year-round.
Auto dealers in the region reported roughly steady sales in November at around
the same rate as in October. Manufacturers have stepped up promotions, and dealers
expect that a year-end marketing push will maintain the sales rate close to
its current pace through December.
Outstanding loan volume at Third District banks rose in November, according
to banks contacted for this report. Commercial and industrial loans have been
growing, with much of the new borrowing being done by middle market firms in
the business and professional services sector. Bankers noted that revenues of
their business borrowers have been improving and the credit quality of their
business loans has been good. Competition for business loans among banks and
nonbank lenders continues to be strong. Consumer credit has increased moderately,
and some banks noted recent gains in home equity lending. Banks generally indicated
that residential real estate lending expanded in November, although refinancing
activity eased. Bankers in the District expect overall lending to rise in the
months ahead. They expect further gains in business and consumer lending at
or above the current growth rate, but they anticipate a slowing in growth of
residential real estate lending.
Investment companies and stock brokers in the region have been receiving strong
cash inflows. Some indicated that growth in business has been steady since midyear,
and others said the increase has been recent. In response to the expanded activity,
some securities firms are raising staffing levels.
Real Estate and Construction
Commercial real estate firms in the Third District reported that vacancy rates
in the region's office markets have been roughly steady in the past few months.
However, effective rents have declined as landlords compete for new tenants
and lease renewals. Commercial real estate firms expect office vacancy rates
to move down in the year ahead in most parts of the region. They expect a turn
toward better balance between supply and demand in suburban markets, but not
in the Philadelphia central business district, where new construction spurred
by local tax abatements has added significantly to the amount of office space
available. Industrial building vacancy rates have changed little in recent months,
but rents have declined in most parts of the region. However, there are some
areas of strong demand, and construction of industrial and multi-use buildings
has picked up somewhat in these areas.
Residential real estate agents indicated that sales have been roughly steady
in recent weeks. Homebuilders also reported steady sales. Price appreciation
continues for existing homes, and builders in many parts of the region have
been raising prices for new homes. Real estate agents in some areas said there
has been a slight increase in the amount of time houses are on the market before
being sold, but most residential real estate contacts indicated that demand
continues to be strong. Both builders and real estate agents expect the pace
of sales to remain roughly steady. They anticipate rising employment and incomes
to cushion the effect of potential increases in mortgage interest rates as long
as the upturn in rates does not exceed one or two percentage points.
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For the six-week period through the middle of November, economic activity appeared
to expand little in the Fourth District. Production levels at the District's
durable and nondurable goods manufacturers remained flat, as in August and September.
Sales at the District's retailers also remained largely unchanged throughout
this period, conforming to the pattern of reports since late spring. Residential
construction continued to slow, while seasonal declines in demand weakened some
of the momentum that nonresidential builders had been reporting. District banks
reported steady loan demand among their commercial and consumer clients. Finally,
shipping firms continued to report robust demand.
There were some signs that input costs began to stabilize for manufacturers,
and retail price pressures remained limited. While hiring still seemed to be
modest among many business contacts, staffing services companies are optimistic
about their prospects for the first quarter. Contacts at staffing services companies
also reported an increase in the number of employed workers interested in switching
to a new job.
Most of the District's durable goods producers continued to see steady levels
of production in October and through the middle of November. However, year-over-year
comparisons were less favorable for firms through this period than in the recent
past: Almost half reported less production than at this time last year. Some
of the slowing can be traced to auto producers' production cuts. Domestic steel
shipments also slowed somewhat, but they are still substantially higher than
at this time a year ago. Contacts attributed the slowing shipments largely to
seasonal changes in demand. However, increases in steel inventories and imports
are also likely having an effect. Nondurable goods producers described production
levels as steady in recent weeks, as well as relative to this time last year.
Nevertheless, most expect weaker activity through the next several months. By
contrast, expectations among durable goods producers are almost evenly split
between those anticipating more production and those anticipating less.
As in the most recent report, roughly half of the respondents from durable
goods manufacturers reported having higher inventories than desired. By contrast,
most nondurable goods producers reported that their inventories were not above
acceptable levels. In general, durable and nondurable goods producers are planning
little hiring and few increases in capital outlays over the near term.
For the first time in months, cost pressures appeared to moderate for many
manufacturers through the six weeks ending in mid-November. In fact, several
firms reported that their input costs were flat throughout this period. Lower
prices for petroleum-based products and steel appeared to account for much of
the change. Nevertheless, manufacturers' materials costs remain higher than
at this time last year, and, accordingly, firms continue to attempt to raise
their prices--many successfully so--to recover the increases in input costs.
The economic environment for the District's retailers remained largely unchanged
in recent weeks. Most contacts continued to characterize sales as flat, with
business conditions little changed since the spring. On a year-over-year basis,
specialty stores and discounters reported a slight increase in sales, while
department stores saw sales decline. Auto dealers reported falling sales for
the six weeks through the middle of November. Finally, it was reported that
cosmetics and other personal care products, home appliances, and certain apparel
categories sold well.
Some contacts had expected sales to strengthen following the presidential election,
but sales through the first half of November don't appear appreciably better
than before. Accordingly, firms are cautious in their forecasts for the upcoming
holiday selling season, anticipating, at most, only slightly better sales than
at this time a year ago. Most retailers reported that their inventories were
well-managed and about the same as a year ago, though auto dealers generally
had higher inventory levels than desired.
Automobile dealerships continued to offer an array of sometimes substantial
incentives. One newly introduced incentive allows buyers to lock in current
interest rates on a subsequent purchase for a five-year period. Prices for used
cars also continued to fall. For other retailers, reports regarding changes
in prices were mixed. For firms that attempted to increase some product prices,
these changes were reportedly resisted by consumers. Regarding hiring, seasonal
workforce additions were expected to be about the same as at this time a year
ago; plans for permanent staff additions are still few.
The pace of residential construction continued to weaken slightly throughout
the District, even after accounting for the typical seasonal slowing. Reports
of declines in activity were particularly prominent in the Cincinnati area.
Building also appeared to be down for most firms on a year-over-year basis.
Nevertheless, nearly half of the firms contacted continued to expect their sales
in 2004 to ultimately surpass those seen in 2003. Contractors' costs for most
materials declined throughout the fall, but often are still above their levels
from a year ago. Increases in cement and concrete prices have also been reported.
Finally, firms that were expanding planned to continue to add to their staffs.
After recent reports indicated better business conditions for nonresidential
builders, activity appeared to slow in the six weeks through the middle of November.
However, many contacts attributed this to a normal seasonal slowing. While many
firms don't anticipate much more activity through the remainder of this year,
there is optimism about stronger activity in 2005. Materials costs were flat
for most firms in recent weeks, though higher than at this time last year. No
nonresidential builders reported plans to hire, but several indicated that they
may shed some workers in the weeks ahead.
Most institutions in the District reported moderate increases in deposit growth
through the six weeks ending in mid-November. Throughout this period, District
banks also characterized their commercial clients' demand for credit as steady.
There were some isolated indications that commercial clients were seeking funding
for expansions, as some bankers suggested that business confidence had improved
in recent weeks. Lending to consumer clients was also characterized as steady,
though mortgage activity appeared to vary by region. Finally, credit quality
continued to be good at most institutions in the District.
Trucking and Shipping
Demand for trucking and shipping services remained robust in October and through
the middle of November. As has been the case in recent reports, demand continued
to come from an array of sectors, with demand from retailers especially strong
in advance of the holiday selling season. Shipping firms' fuel surcharges continued
to insulate them from increases in fuel expenses. Many shippers are also beginning
to increase their base rates. As firms attempted to expand capacity, they continued
to report trouble hiring drivers. Wage rates have risen as a result, and one
firm reported attempting to attract drivers by offering benefits such as routes
closer to a prospective hire's home. Capital spending by shipping firms continued
to be strong through the middle of November.
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The Fifth District economy expanded at a moderate pace in late October through
mid November though there were increasing signs that retail sales and manufacturing
were losing momentum. District services businesses generally reported solid
revenue growth since our last report but retailers said sales barely increased
and employment in the sector was flat. Manufacturers said both shipments and
new orders expanded somewhat more slowly in October and softened in early November.
Housing markets continued to show healthy growth since our last report, although
the pace of expansion was less robust than in late summer. In contrast, commercial
real estate conditions brightened considerably from the lackluster pace seen
earlier in the year. District manufacturers continued to face higher prices
for some raw materials, notably oil, gas, and steel, and contacts said that
they were not able to fully pass along the higher costs. Business contacts generally
reported that prices for their products and services continued to rise only
modestly. In agriculture, heavy rainfall hampered harvesting activity, but contacts
expected near-record corn and soybean crops.
Services firms in the District continued to report increased customer demand
in recent weeks, though the pace of growth slackened somewhat. A contact at
a North Carolina freight company said business was steady despite their charging
higher freight rates to offset increased gasoline costs. A physical therapist
in Goldsboro, N.C., noted that revenues at her organization had declined in
part because of a continued slow economy in that area of North Carolina. But
some contacts were relatively upbeat. A financial services business in central
Virginia told us clients became more optimistic as the uncertainty surrounding
the timely conclusion of the U.S. presidential election was removed. In labor
markets services employment expanded at a slower pace.
Reports from District retailers indicated that sales growth softened in October
and early November and contacts were less optimistic about holiday revenues.
A furniture store in central North Carolina and a lumber retailer in Columbia,
S.C., reported slower growth in their sales since our last report. Automobile
dealerships in the District generally reported little change in sales although
a dealer in Norfolk, Va., and a dealer in Orangeburg, S.C., reported that sales
declined in early November. On a brighter note, a manager at a large North Carolina
bookstore said holiday purchases began about a week earlier than usual while
a contact at a department store in the lowlands of South Carolina said current-store
sales goals had been "easily met."
Growth slowed in the District's manufacturing sector in October and in early-to-mid
November. Factory shipments and new orders expanded at a somewhat slower pace
and manufacturing employment was flat. A number of firms in the District suggested
that sales were little changed from previous months; a packaging manufacturer
in North Carolina said that their business was holding its own though a furniture
manufacturer in North Carolina was a little more upbeat, noting that new orders
were "coming in on a more steady basis." But a plastics manufacturer in North
Carolina noted a "dip" in manufacturing activity and a textile producer there
said business was "very seasonally slow." Prices for raw materials rose at a
quicker pace in recent weeks although continued competition from abroad led
many District manufacturers to hold the line on prices. An electric equipment
manufacturer in Greenville, S.C., reported moderately higher prices for raw
materials, noting that rapid economic development in China had spurred sharply
higher demand for steel and the types of metal castings and machined parts used
in his business.
District loan officers reported a modest uptick in loan demand from late October
through mid November. Lenders said that demand for commercial loans picked up
after the presidential election in November as uncertainty regarding the election
outcome dissipated. Bankers in Charlottesville, Va., told us that borrowing
to finance construction and real estate purchases strengthened considerably.
Residential mortgage lending was stable in most areas of the District. A Charleston,
W.V., banker reported fairly strong mortgage demand for new home purchases as
the housing market there "rocked right along," but the contact said that mortgage
refinancing activity remained light. District bankers reported little change
in credit standards for borrowers.
District real estate agents reported generally strong housing markets in recent
weeks, but said that growth in home sales continued to tail off. An agent in
Asheville, N.C., told us his office set a record for home sales in October and
a real estate analyst in the Carolinas noted that the resort and retirement
markets remained strong. A contact in Odenton, Md., however, told us that homes
in the low to middle-price range were staying on the market a "tad" longer.
An agent in Fairfax County, Va., also reported slower growth in home sales but
said that homes priced below $400 thousand still received multiple offers. Confirming
strength in the Northern Virginia market, a real estate agent in Vienna, Va.,
said housing markets remained "hot" in all price ranges. On the price front,
District homebuilders reported that increases in materials costs had slowed
in recent weeks.
Commercial real estate conditions brightened throughout the Fifth District
during the past six weeks. Agents stated that the recent improvement had been
driven primarily by increased leasing of new retail and office space--much of
it by expanding small businesses. "The calls we are getting are from people
who want to take their businesses out of their homes and other small spaces
and move to somewhere they can grow," noted a contact in Raleigh, N.C. Contacts
also noticed "some early signals" of a recovery in industrial leasing. Realtors
in Charleston, W.V., Charlotte and Greensboro, N.C., Columbia, S.C., and Washington,
D.C., mentioned a rise in industrial activity. The leasing of smaller spaces
called "warehouse condos" was particularly strong. Adding to the recent upbeat
tone, vacancies across all sectors edged lower and rents held steady. Despite
firmer demand, office and industrial construction remained stagnant while retail
construction maintained its steady pace.
District tourist activity was mixed since our last report. Contacts on the Outer
Banks of North Carolina and in Virginia Beach, Va., reported little change in
tourism in November. A contact in Virginia Beach said that corporate travel
budgets appeared to have tightened and that customers at her hotel were increasingly
making last minute reservations as a result. In contrast, a contact in Myrtle
Beach, S.C., reported somewhat stronger business and indicated that tourist
spending continued to grow. Reports from mountain areas were also mixed. A manager
at a resort in western Virginia said that holiday bookings were above year-ago
levels, while a contact in West Virginia said bookings were under pressure from
higher gasoline prices which kept travelers closer to home.
Contacts at employment agencies reported firmer demand for temporary employees
in recent weeks. A manager in Raleigh, N.C., said that continued economic recovery,
a pick up in jobs creation, and "relief that the political process was done
for this year" all led to stronger demand for temporary workers. He expected
his temporary, temp-to-hire, and direct-placement business to continue to prosper.
An agent in Morrisville, N.C., told us that increased marketing efforts were
paying off and that placement of temporary workers was picking up there.
Heavy precipitation coupled with cooler weather in November delayed field work
and hindered harvesting activity in some areas of the District. Cotton and soybean
harvesting in South Carolina and in Virginia in particular were slowed by rainfall.
Despite the interruptions, analysts expected near-record yields of corn and
soybeans. Small grain crops were reported to be in mostly good condition in
Maryland, South Carolina and West Virginia. In addition, the harvesting of apples
and sweet potatoes was nearing completion in South Carolina. Christmas tree
producers in North Carolina reported that they were in full swing for the upcoming
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Business contacts reported that the pace of economic activity increased in
October and early November. Hurricane-related disruptions have subsided outside
of the worst affected areas, and rebuilding efforts have boosted activity in
several building related industries. Passenger vehicle sales continued to lag,
whereas other retailers reported modest improvements in sales and most expressed
cautious optimism toward the holiday season. By most accounts, housing markets
remained strong and the nonresidential segment displayed small improvements.
Manufacturing reports were quite positive, and the demand for transportation
services was strong. However, several Gulf of Mexico oil and gas pipelines remained
off-line because of storm damage. The tourism and hospitality sector reports
were mixed, varying by their location relative to the path of the hurricanes.
The demand for construction workers was very strong in the storm-affected areas,
and additional hiring was noted in manufacturing industries supplying building
materials. Higher prices were reported for building materials, energy, and some
food produce, the latter pushed up because of storm damage to several Florida
Most District retailers indicated that October and early November sales rose
modestly compared with last year and were in-line with expectations. Most merchants
were cautiously optimistic heading into the holiday season. The strongest sales
reports came from specialty non-discount stores. Retailers in the worst storm
affected areas reported poor sales outside of building supplies and groceries.
Automobile sales continued to be lackluster and several industry contacts reported
lower than expected sales of some SUV segments.
Contacts reported that District housing markets remained generally strong in
October and early November. However, existing home sales were described as having
moderated in some markets outside of Florida. Recovery from storm damage continued
to dominate building activity in parts of Florida and in South Alabama. Building
supplies and labor remained scarce in these areas. Some Realtors in Florida
reported strong demand for housing even in some of the hurricane-damaged areas.
Nonresidential market contacts continued to report modest improvements in vacancy
rates, whereas nonresidential construction remained muted.
Manufacturing and Transportation
Reports from the factory sector were mostly positive, boosted by increased regional
demand for building materials. Several contacts reported longer work hours and
additional hiring at building material suppliers. In some cases, plants were
operating at capacity. Defense and aerospace industry contacts reported steady
activity, while plans for additional auto parts manufacturing plants were announced.
Reports noted that most storm-related disruptions to manufacturing production
were only minor. However, oil refineries remained hampered by supply problems
associated with offshore pipeline damage. District transportation contacts continued
to report strong demand for freight services through October and early November.
Tourism and Business Travel
Reports from the District's tourism and hospitality industry indicated steady
recovery after the recent hurricanes. Contacts were guardedly optimistic about
the 2005 season, with seasonal winter bookings strong in parts of Florida. For
instance, some reports noted that advance bookings for larger Miami Beach and
Palm Beach resorts were stronger than last year. Hurricane-damaged facilities
were under repair and in some cases repair work is expected to take several
months to complete. Florida tourism officials expressed concern about possible
declines in visitor numbers next summer if the predicted number of hurricanes
Banking sector reports were mostly positive in October and early November, with
several banks reporting strong income growth and good asset quality. Consumer
loan demand continued to be strong and delinquencies remained at low levels
in most areas. However, reports of home foreclosures increased in locations,
such as some suburbs of Atlanta. Commercial loan demand displayed a modest improvement,
but remained at low levels overall.
Employment and Prices
Reports from labor markets were positive in October and early November. Most
displaced workers in Florida have reportedly returned to their previous employer
or have found new positions since the hurricanes. The surge in hiring for clean-up
jobs has slowed, but construction workers and especially roofers were in high
demand. Construction labor shortages reportedly caused wage costs to increase.
In addition, the influx of construction workers was said to be depleting the
construction workforce in some non-affected areas of the District.
Prices for building materials and energy remained at high levels, according
to most reports. Building costs continued to rise for wood, steel, concrete,
gypsum board, shingles, and shutters. Price increases for reinforced and structural
steel were also reported, in part because of increased overseas demand. Delivery
surcharges by building supply businesses and transporters were widely reported.
The recent rains sharply reduced harvest time and fieldwork for District farmers.
The hurricanes seriously affected production levels for several Florida crops.
The outlook for Florida's citrus growers was made more uncertain because the
hurricane caused spreading of the citrus canker disease. Prices for tomatoes,
peppers and other key Florida crops were reportedly rising because of simultaneous
crop damage in other parts of the country. Reports indicated that this year's
cotton crop might be larger than expected.
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The Seventh District economy continued to expand at a moderate pace from late
October through mid-November. Consumer spending remained relatively soft, but
business spending continued to pick up. Construction and real estate activity
was largely the same as at the time of our last report. Manufacturing continued
to be robust, with contacts reporting further gains in production, new orders,
and backlogs. Bankers said that demand increased slightly for both household
and business loans. High input costs persisted, but retail price pressures were
largely subdued. Agriculture prospects remained strong, with bumper corn and
Consumer spending remained relatively soft from late October through mid-November.
Retailers generally indicated that sales nationwide were coming in at the lower
end of their expectations, with the Midwest softer than other regions. However,
some said that store traffic and sales of seasonal merchandise picked up as
temperatures cooled. Despite stronger job growth and higher consumer confidence,
merchants' expectations for the holiday shopping season remained somewhat cautious.
Retail inventories were said to be in line with sales plans. Many restaurants,
from quick-casual to high-end, noted stronger sales during the reporting period.
One property manager noted that restaurants were benefiting from a general upswing
in shopping center traffic. District auto dealers said that light vehicle sales
were relatively soft in early November, which was in line with expectations,
and that inventories were slightly high. Once again, tourism and related spending
was reported to be a bit above year-earlier levels.
Business spending continued to increase and more firms appeared to be hiring.
Many businesses reportedly boosted outlays for production machinery, office
equipment, and computers. Still, contacts again suggested that a large portion
of capital outlays was devoted to replacing outdated or worn equipment and/or
cost-saving technologies, rather than expanding productive capacity. Business
travel and advertising continued to rise modestly. With regard to hiring, one
large temporary help firm indicated that new orders increased significantly
in October and early November after falling off in September. This firm, and
others, noted that demand for temporary workers was strong across industry and
occupational categories. In addition, temp-to-permanent placement fees continued
to rise. Outside of temporary help firms, reports of additional permanent hiring
became more frequent, particularly from manufacturers.
On balance, there was little discernible change in real estate and construction
activity in recent months, as some slowing in housing markets was offset by
a slight strengthening on the nonresidential side. Though reports were mixed,
Realtors and builders generally indicated that housing markets remained strong
even though sales were a little slower than earlier in the year. However, a
contact with one builders' association suggested that most homebuilders were
expecting mortgage interest rates to rise next year, heightening uncertainty
among many of them. Commercial construction and real estate activity continued
to increase slightly. Despite recent gains in office markets, contacts still
described it as "a tenants' market," with leases containing higher-than-normal
improvement allowances and rent abatements.
Manufacturing activity continued to increase. Producers of heavy equipment (construction,
agricultural, and mining) again reported considerable ongoing strength in production,
new orders, and backlogs. One contact suggested that tax incentives set to expire
at the end of the year may be pulling ahead orders for heavy equipment. New
orders for heavy trucks were "at extremely strong levels" and production was
constrained by shortages of engines and other parts. Machine tool makers said
that new orders increased further from very high levels. Shipments of cement
and gypsum wallboard continued to rise, and industry contacts said that some
firms had added capacity, or planned future additions, to keep up with demand.
Some specialty steel products were said to be in short supply. More generally,
however, demand for domestically produced steel eased somewhat recently, due
in large part to an increase in imports and softening demand from the auto industry.
Light vehicle sales nationwide were said to be "tepid" in early November, and
inventories were rising again. As a result, one producer indicated that fourth-quarter
production schedules probably will be cut.
On balance, lending activity increased slightly from our last report. On the
household side, some lenders reported an uptick in mortgage loan applications
as long-term interest rates remained historically low. There were no changes
reported on standards and terms for household loans, and credit quality continued
to improve. Demand for business loans increased slightly. One large bank reported
that its October increase in commercial loan volumes was one of the strongest
this year. In addition, commercial credit line usage increased. Still, overall
lending remained well below expectations. There were no reported changes on
standards and terms for business loans, and lenders said that credit quality
was good and largely unchanged.
Reports of higher input costs persisted and wages continued to increase at a
slightly faster pace, but retail price pressures remained largely subdued. Contacts
reported that prices for some materials were decreasing. Notably, steel prices
were reported to have declined from relatively high levels, and lumber prices
also fell in recent months, alleviating cost pressures on homebuilders. Still,
many materials prices remained elevated. The number of firms that were able
to pass higher input costs along to their business customers continued to rise,
although the price increases appeared modest. Some restaurants were said to
be raising menu prices to offset higher food costs. Still, price increases for
final consumer goods remained largely contained.
Harvest was nearing completion in Illinois, Indiana, and Iowa, but still lagged
in Michigan and Wisconsin, especially for corn. Corn and soybean harvests for
most District states were likely to approach or set record highs, and concerns
about storage of the bumper crops persisted. Precipitation replenished depleted
soil moisture levels in parts of the District, but also delayed field work and
boosted the moisture content of grain stored outside. Fertilizer prices have
increased substantially which, along with higher fuel costs, have tempered gains
in farm income, even as government payments provided a boost. Soybean rust,
recently discovered in the South, has become a major concern in the District,
with planting decisions likely to heavily favor corn over soybeans next year.
Livestock producers have benefited from lower feed costs and continued to make
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Eighth District--St. Louis
Business activity in the Eighth District expanded modestly since our previous
survey. In manufacturing, a majority of contacts reported plans to open plants
and hire additional workers. Most contacts in the services sector continued
to report improved economic activity. Retail and auto sales declined in September
and October with respect to year-earlier levels. Residential real estate markets
continued to do well, while commercial real estate markets remained soft. Overall
lending conditions at a sample of District banks were mostly unchanged in the
three months ending in October.
Contacts reported that retail sales in September and October were down, on average,
over year-earlier levels. While 26 percent of the retailers surveyed noted that
sales levels met their expectations, 70 percent reported that sales were below
what they had anticipated and 4 percent reported sales above expectations. Women's
fashion accessories, jewelry, cosmetics, shoes, athletic apparel, and computers
were all strong sellers, while furniture, big appliances, luxury and specialty
items, and toys were moving more slowly. Nearly 80 percent of contacts noted
that inventories were at desired levels. Retailers appear generally optimistic
about sales during the upcoming holiday season, and more than 80 percent of
contacts expect that sales will increase over 2003 levels.
Car dealers in the District reported that, compared with last year, sales in
September and October were slightly down, on average. About 64 percent of the
car dealers surveyed reported decreases in sales, while another 24 percent reported
increases. About one third of the car dealers noted that used car sales had
increased relative to new car sales, and about 32 percent reported an increase
in low-end vehicle sales relative to high-end vehicle sales. About 38 percent
of the contacts surveyed reported increased use of rebates, while 43 percent
reported no change. Nearly all of the respondents reported no change in the
acceptance rates of finance applications. About 60 percent of the car dealers
surveyed reported that their inventories were at desired levels, while 32 percent
reported that their inventories were too high, with a few contacts reporting
excess of sport utility vehicles. A slight majority of the car dealers surveyed
expect increased sales over 2003 for the remainder of the year.
Manufacturing and Other Business Activity
Manufacturing has shown modest improvement since our previous report, with a
majority of firms reporting plans to open plants and expand operations and fewer
firms reporting plans to close plants and lay off workers. Several firms in
the aerospace, food manufacturing, auto parts, electrical equipment, manufactured
home, and fabricated metal product industries announced plans to open new plants,
which will likely result in more than 750 new jobs by 2006. A firm in the paper
manufacturing industry reported plans to relocate its headquarters to the District
and add several hundred new jobs. Firms in the household appliance, auto parts,
and fabricated metal products industries reported plans to expand existing plants
and hire as many as 640 workers. In contrast, firms in the plumbing fixture,
nonmetallic mineral, and furniture industries reported plans to close plants,
displacing as many as 500 workers. Other firms in the auto parts and household
appliance industries reported plans to lay off approximately 310 workers.
Most contacts in the services sector continued to report improved economic
activity. Firms in the freight transportation, recreation, financial and insurance
services, traveler accommodation, and health services industries reported openings,
expansions, and increases in hiring, likely resulting in more than 1,020 new
jobs. A firm in the freight transportation industry plans to hire as many as
425 temporary workers to meet increased holiday demand. In contrast, firms in
the food services and air transportation industries reported facility closures
and workforce reductions. A firm in the utility industry plans to reduce its
workforce with a voluntary termination package offered to as many as 950 workers.
Real Estate and Construction
Residential markets continued to do well in most of the Eighth District in September.
In the greater Louisville area, September year-to-date sales increased by 2.1
percent compared with the same period in 2003. The increase in year-to-date
sales was 4.7 percent for the greater St. Louis area and 15.8 percent for Memphis.
Sales were still strong in Little Rock and the Tupelo region. Year-to-date single-family
housing permits increased in most of the District's metropolitan areas compared
with the same period last year. September year-to-date permits in St. Louis
City and County grew by 19.6 percent compared with the same period in 2003.
Residential construction has been flat in Jackson, Tennessee but remained steady
in southern Indiana and northeast Arkansas.
Commercial real estate markets continued to lag behind residential markets
in most of the District. The third-quarter industrial vacancy rate in the greater
Louisville area remained virtually unchanged at 18.2 percent compared with the
previous quarter. The overall office vacancy rate in Louisville's central business
district rose to 21 percent in the third quarter from 20.4 percent in the previous
quarter. Contacts reported that office leasing was very slow in downtown Little
Rock. There was some improvement in commercial construction in most of the District.
Construction activity has been picking up in Little Rock, and it has remained
steady in southern Indiana.
Banking and Finance
A survey of senior loan officers at a sample of District banks indicated little
change in overall lending activity in the three months ending in October. During
this period, credit standards and demand for commercial and industrial loans
remained unchanged for both large and small firms. Similarly, credit standards
for commercial real estate, residential mortgage, and consumer loans remained
basically unchanged. The demand for commercial real estate loans showed some
indication of being moderately stronger. During the same period, the demand
for residential mortgage loans varied from moderately weaker to moderately stronger
and the demand for consumer loans was basically unchanged.
Agriculture and Natural Resources
Recent rains in the District have improved pasture conditions and soil moisture
levels. The corn harvest is now virtually complete in all District states. The
soybean harvest is mostly complete in Illinois, Indiana, and Mississippi, but
it is behind its average pace in the remaining District states. The cotton harvest
is running behind its average pace because of wet conditions, and the rice harvest
is complete. November yield and total production estimates for corn, soybeans,
rice, and cotton surpass those of last year. With the exception of Illinois
and Indiana, winter wheat planting in the District states is far behind because
of delays caused by wet weather conditions.
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The Ninth District experienced broad-based growth from October through mid-November.
Signs of growth were noted in most areas: consumer spending, manufacturing,
construction, energy, mining and agriculture. Tourism was about even with a
year ago. Labor markets tightened and wage increases were modest. Price increases
appeared in a number of sectors including manufacturing, construction and energy.
Consumer Spending and Tourism
Overall consumer spending increased from a year ago. A major Minneapolis-based
retailer reported same-store sales up 6 percent in October compared with a year
ago, while a Minnesota-based women's apparel chain reported October same-store
sales up 7 percent compared with last year. A mall manager in Montana reported
sales up about 3 percent compared with a year ago; foot traffic picked up in
the first half of November. A Minneapolis area mall manager expects a 4 percent
to 5 percent increase in holiday sales compared with last year. A South Dakota
bank director said most businesses are optimistic for holiday sales.
An auto dealer in Minnesota reported that October was generally slow for traffic
and sales compared with a year ago; November started a little stronger.
Autumn tourism activity was about even with a year ago. The number of visitors
at tourism destinations in the Black Hills of South Dakota during September
and October was down slightly compared with a year ago; however, revenue was
up slightly. Fall outdoor activities were strong in northwestern Wisconsin,
although retail sales slowed somewhat, according to a chamber of commerce representative.
Manufacturing activity increased. Based on preliminary results from the Minneapolis
Fed's annual business poll (November), respondents from the manufacturing sector
expect strong growth in company sales, employment and investment in 2005. In
addition, an October survey of purchasing managers by Creighton University (Omaha,
Neb.) indicated strong manufacturing activity in the Dakotas and Minnesota.
A cabinet producer in Minnesota plans to add a warehouse and a finishing facility.
In South Dakota, a snowplow maker expanded production. A large North Dakota
bakery plans to add $2 million in processing equipment. In northwestern Wisconsin,
a food processor is planning to add a production facility.
Construction and Real Estate
Signs of growth were noted in commercial construction and real estate. In the
Minneapolis-St. Paul area, a large commercial real estate firm recently reported
increased absorption and decreased vacancy rates for office space. The medical
office market is heating up. The industrial real estate market continues to
improve throughout the district. Construction began on a $42 million beef processing
plant in South Dakota. Contracts awarded for large construction projects in
Minnesota and the Dakotas increased 17 percent for the three-month period ended
in September compared with a year ago.
Residential markets continued at a strong pace. A mortgage broker in Fargo-Moorhead
reported she expects another record year. Despite some small corrections in
the Minneapolis-St. Paul area--longer market times, higher inventory and fewer
closings--sales continue at a strong pace. A Minnesota bank director noted residential
construction was strong, with a mixed outlook. However, realtors in the Duluth-Superior
area noted movements toward a buyer's market.
Energy and Mining
Activity in the energy sectors remained strong, and mining activity increased.
Mid-November district oil production increased from early October. A Montana
gas exploration and pipeline company is having trouble finding qualified workers,
and another gas exploration company plans to increase the number of wells drilled.
Iron ore mines continued to produce at capacity. In addition, capital expansion
is under way. In Montana, a bank director noted that mining companies are investing
in capital equipment and are becoming more aggressive in production and expansion.
Agriculture activity increased. "Steadily going up," wrote a Montana lender
responding to the Minneapolis Fed's third quarter (October) agricultural credit
conditions survey. Lenders expected that overall agricultural income would rise
in the fourth quarter. The U.S. Department of Agriculture increased estimates
of the already high forecast for the corn harvest, and the soybean harvest is
expected to be above last year's levels. The Montana winter wheat crop has emerged
at a slightly faster pace than the five-year average. Meanwhile, the USDA forecasts
slight decreases in prices for corn and soybeans and a slight increase in wheat
Employment, Wages and Prices
Labor market conditions showed some signs of tightening since the last report.
A major Minnesota-based airline may recall as many as 400 pilots next year due
to attrition and modest growth. A North Dakota window plant recently announced
the addition of 40 new jobs. Retail hiring is generally expected to be above
year-ago levels at district retail stores. Montana and South Dakota business
contacts mentioned some difficulty in finding qualified workers, especially
skilled workers and in hiring for night and weekend shifts. Just over 44 percent
of preliminary respondents to the Minneapolis Fed's business poll expect to
increase employment at their companies; 49 percent expect to keep staffing levels
the same. A year ago the poll responses were 33 percent and 52 percent, respectively.
In contrast, a Minnesota-based company that makes recordable tape, CD and DVD
products plans to cut 250 jobs companywide, with many of the layoffs taking
place at its headquarters. The closing of a Minnesota call center, due to company
consolidation, will affect 70 jobs.
Increases in wages and salaries were modest. Bank directors in Montana mentioned
moderate increases in wages and salaries in several parts of the state. Wage
and salary growth in 2005 is expected to be subdued; 78 percent of respondents
to the Minneapolis Fed's business poll expect wage increases to range from 2
percent to 3 percent.
Price increases appeared in several sectors, including manufacturing, construction
and energy. Preliminary results of the Minneapolis Fed's business poll indicate
some higher expectations for prices, as 48 percent of respondents expect to
increase prices for their products in 2005, up from 31 percent in last year's
poll. Several construction and manufacturing materials prices increased, such
as aluminum, concrete, copper, diesel fuel and steel products. Softwood prices
decreased since the last report, but were still about 15 percent higher than
a year ago. Pork prices were up about 15 percent from last year.
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Tenth District--Kansas City
The Tenth District economy expanded moderately in late October and early November.
Most retailers posted additional sales gains, factory activity increased further,
and labor markets showed continued improvement. Housing activity remained solid,
and the energy and agriculture sectors were still strong. On the negative side,
commercial real estate markets generally remained weak. Wage pressures were
still modest, but some price pressures persisted for manufacturers and builders.
Consumer spending in the district increased further in late October and early
November. Most store and mall managers reported solid year-over-year sales gains,
and almost no stores reported declines compared with last year. Sales of luxury
items, such as jewelry and designer clothing, were reported as especially strong
at several stores. Almost all managers were optimistic about holiday sales.
Most managers were expanding inventories at least as much as a year ago, and
those that were not generally attributed their leaner inventories to their improved
ability to adjust stock levels quickly. Motor vehicle sales in the district
were flat for the second survey in a row and still slightly lower than a year
ago in most areas. Most auto dealers contacted were satisfied with inventory
levels. However, a number of dealerships still had excess vehicles, especially
in Denver and Kansas City. Most dealers anticipate a pickup in sales in coming
months, due to reduced consumer uncertainty following the election and quality
improvements in new model year vehicles. Travel and tourism activity in the
district was solid in late October and early November, as airport traffic and
hotel occupancy rates remained above year-ago levels in most cities. Looking
ahead, Rocky Mountain resorts reported solid increases in advance hotel bookings
and ski pass sales from a year ago. They also expect an increase in international
visitors this winter due to recent declines in the value of the dollar.
District manufacturing activity expanded moderately in late October and early
November. Manufacturers reported increased production and orders, though the
increase in orders was not as strong as in past surveys. Firms continued to
add employees at a rate similar to the previous survey. About half of plant
managers reported some difficulties obtaining materials, especially petroleum-based
materials, and they generally expect these problems to persist. Factories remained
quite optimistic about future production, and many firms plan to continue to
increase employment and capital spending at a moderate rate in coming months.
Real Estate and Construction
Housing activity remained solid in late October and early November, while commercial
real estate activity was still weak. Overall, single-family housing starts in
the district were flat compared with recent months, although starts were still
high by historical standards. Construction was characterized as stronger for
lower-priced homes than for higher-priced homes in most areas. Most builders
expect solid levels of construction to continue in the months ahead and generally
expect few materials availability problems. According to realtors, home sales
in most parts of the district continued to ease slightly from the high levels
reached earlier in the year, and virtually all realtors noted at least some
excess inventory of homes. Sales were reported as weakest for higher-priced
homes. Most realtors expect home sales to remain solid in the months ahead.
Home prices in most cities were reported to be up slightly from the previous
survey and are expected to post continued modest increases heading forward.
Mortgage lenders reported flat mortgage demand over the past month, with slightly
stronger demand for refinancings than for home-purchase loans. Heading forward,
lenders generally expect refinancings to slow somewhat but home-purchase loans
to pick up slightly. Commercial real estate activity in the district was still
weak but generally stable. Absorption rates were reported to be up modestly
in some cities. However, because the supply of new space also increased somewhat,
vacancy rates were largely unchanged. As in the previous survey, about half
of the commercial realtors contacted expect some improvement in vacancy rates
over the next six months.
Bankers report that both loans and deposits held steady since the last survey,
leaving loan-deposit ratios unchanged. Demand rose for commercial and industrial
loans and commercial real estate loans but fell for consumer loans and home
equity loans. Demand for home mortgage loans was unchanged. On the deposit side,
all major types of accounts were flat. Almost all respondent banks raised their
prime lending rates and consumer lending rates since the last survey. Lending
standards were unchanged.
District energy activity remained very strong in late October and early November
but eased slightly from the previous survey. The count of active oil and gas
drilling rigs in the region edged down to mid-summer levels but was still well
above year-ago levels. About half of contacts continue to report constraints
on drilling due to labor and equipment shortages. Absent these constraints--which
are expected to persist for at least another six months--contacts believe drilling
could increase by 10 to 20 percent.
Agricultural conditions in the district were strong in late October and early
November. The harvest of spring-planted crops was nearly complete, and producers
reported above-average quality and yields, especially for corn and soybeans.
Winter wheat planting was also completed, and conditions were favorable heading
into the dormancy period. In the livestock market, the price of feeder cattle
moved down slightly since the last survey, but ranchers were still reluctant
to expand herds. Agricultural bankers generally expect farm income to reach
a new record in 2004.
Labor Markets, Wages, and Prices
Wage pressures remained modest despite further firming in labor markets, but
price pressures persisted for manufacturers and builders. Labor markets showed
further steady improvement, as layoff announcements continued to decline and
hiring announcements remained solid. Hiring of temporary workers was reported
as stronger in some areas but little changed from recent months in other areas.
A number of firms continued to have difficulty finding qualified workers, especially
in the energy sector and for some skilled factory and repair positions. However,
wage pressures were still generally modest outside of the energy sector. Most
retailers reported flat selling prices compared with previous surveys, though
some sellers of furniture, flooring, appliances, and hardware continued to report
modest price increases. Retailers and mall managers generally expect holiday
price promotions to be similar to previous years. Virtually all builders continued
to report higher prices for a broad range of materials, including lumber, drywall,
cement, and steel products. However, they generally expect these prices to level
off in the near future. A large number of manufacturers also continued to report
higher materials costs, and many of these firms reported increases in output
prices as well. Most plant managers expect input price pressures to persist
in the months ahead, though some anticipate a pause in the rise in steel prices.
As for output prices, several firms previously unable to raise their prices
believe they will soon be able to do so.
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Eleventh District economic activity appears to have accelerated slightly from
mid-October to mid-November. Manufacturing and business service activity continued
to slowly strengthen. Retail sales and construction were mixed. Financial institutions
report continued improvement in conditions. Energy activity is up. Agricultural
conditions remain mostly favorable. Many respondents noted relief that the election
was over, explaining that it wasn't because one candidate won over another as
much as the elimination of uncertainty.
There were many reports of higher prices but also reports of downward price
pressures. Energy prices remain relatively high after spiking and then declining
slightly. Higher costs for energy and other inputs remain a concern for most
respondents. Some say they are increasing selling prices enough to make up for
the cost increases. Others say competitive pressures, both domestic and international,
are making that difficult. Contacts say import competition, particularly from
China, is keeping downward price pressure on some manufactured products, such
as apparel and fabricated metals.
After surging to near $56 per barrel on the spot market, crude prices dropped
to slightly below those reported in the last Beige Book. Crude inventories are
now near the five-year average level for November, helped by a surge of imports
that had been delayed by Gulf Coast hurricanes. Private forecasts of a cold
winter and spiking heating oil prices pushed spot natural gas prices to near
$8 per million Btu in early November, but prices fell to near $7 per million
Btu as natural gas storage rose to record levels.
With the possibility of stronger than normal seasonal demand for heating oil,
contacts report concerns about heating oil production for the coming winter.
Refiners have been in a significant turnaround period, and operating rates in
October were below normal even for the fall maintenance season. Heating oil
inventories have fallen to levels near the bottom of the five-year range. Heating
oil prices have been whipsawed by uncertainty about the ability to refill inventories
before winter arrives.
Selling prices are up for most chemical products. Producers say heavy demand
is helping them pass along significant cost increases, primarily from energy,
but also from shipping and other material inputs. Metals producers say selling
prices are up slightly because of steep cost increases for aluminum, scrap metal,
nickel and alloy.
Some producers express concerns about the effects of a weaker dollar, noting
that increased costs for imported materials are pushing up prices for final
products. Other contacts say they are not affected by changes in the value of
the dollar because they do much of their transactions in dollars or in currencies
that are pegged to the dollar.
Retailers anticipate the January 2005 elimination of import quotas for textiles
to lower imported textile prices by as much as 13 percent to 18 percent. This
reduction is expected to be reflected in prices for spring merchandise. Retailers
do not expect to reduce selling prices. They say lower costs will translate
into "more normal" profits and an improved quality of merchandise.
There are few reports of hiring or wage increases, although higher benefit costs,
particularly for health care, remain a pervasive concern. Temporary service
firms say they hope to push through higher fees to offset an increase in the
Texas state unemployment insurance tax that they have been told is likely in
Manufacturing activity increased for most products. Demand was up for fabricated
metals, high-tech, food and energy-related products. Sales remained strong for
construction-related products, such as lumber, clay, cement, brick and glass,
but contacts are cautious about slowing demand for housing.
Sales of primary metals declined slightly over the past couple of months, leading
to a few shift reductions but no major layoffs. While contacts noted some continued
effect from the hurricanes, they say there was also increased competition from
Chinese imports. Sales of paper products have been lower than expected for this
time of year, which contacts attribute to loss of market share to overseas producers.
Demand for food products increased some over the past month. Apparel producers
say demand has been unchanged over the past month but is up from three months
ago. Apparel manufacturers are very concerned about China's import quota ending
High-tech manufacturers report that production and orders continue to grow
at a good pace. Contacts say retailers have built inventories of IT products
in expectations of healthy Christmas spending and there may be some shortages
if sales are very strong.
Demand was up for energy-related manufacturers, including producers of oilfield
hardware, tools and well-bore equipment, who reported higher prices, sales and
margins. Demand for chemicals is extremely strong, particularly for products
such as ethylene, polyethylene, polypropylene, polyvinyl chloride, chlorine,
and caustic soda. Export demand for petrochemicals was very strong, based on
favorable natural-gas-to-oil-price ratio, a weaker dollar, and significant operating
problems in Europe and Venezuela. Refiners' margins have steadily improved in
recent weeks, coming back from a significant decline in margins in late summer.
Demand for temporary staffing firms picked up in most parts of the district.
Demand strengthened for light industrial manufacturing, administrative and clerical
work, according to contacts, but demand remained weak in the financial services
sector. There were reports of temporary workers being made permanent, which
contacts said was unusual for this time of the year.
Demand for legal services has been strong in the past month, and contacts say
activity is up compared with a year ago. Accounting firms report that demand
remains very strong and increasing, mostly due to the increased needs of the
Sarbanes-Oxley Act. Accounting firms report substantial hiring, particularly
for auditors and risk management professionals. Salaries for these types of
professionals have increased by as much as 7 percent to 8 percent this year.
High fuel costs continue to plague transportation service firms. Railroads
report high loads, particularly to carry metallic ores, metals, wood, building
products and domestic consumer goods. The airline industry continues to suffer
from too much capacity and no pricing power, forcing them to absorb all cost
pressures. Contacts say that restructuring is being impaired by bankrupt carriers
that continue to operate below total costs, pulling down healthier carriers.
Sales growth increased for retailers selling to upper-and middle-income consumers,
with particularly strong sales of high-end products, such as HDTVs and jewelry.
Respondents attributed the increase in sales to lower gasoline prices, greater
job security and reduced geopolitical concerns. Sales growth was "disappointing"
for retailers selling to the lower-income consumers. Contacts say that these
consumers are still feeling the strain of high gasoline prices and health care
costs. Automobile sales remain soft, down slightly from year ago levels, with
inventories higher than desired.
Construction and Real Estate
Housing sales and prices softened slightly over the past six weeks. Existing
home sales tapered off, and homebuilders say traffic has slowed and they are
offering more concessions. Many homebuilders report that sales are still above
last year's levels, but inventories continue to rise. Housing industry contacts
are optimistic for 2005, but say a stronger rate of job growth is needed to
meet sales expectations.
The continued construction of new units is weighing down apartment markets
in Dallas and Houston. Occupancy levels in Austin and San Antonio have improved,
but contacts remain cautious about the outlook because of the amount of construction
proposed and underway.
Office markets improved over the past six weeks. Respondents say leasing activity
continued to pick up slowly. Existing tenants are expanding lease space, as
companies and take advantage of low rental rates. Tremendous capital market
activity continues. Office construction remains very low, with most being build-to-suit
or government funded.
Deposit growth was flat to up. Commercial and industrial lending activity appears
to be picking up, but contacts report that lingering uncertainty about the economy
is still slowing some investment. Some contacts expressed concerns that higher
interest rates are slowing lending, particularly to small business. Mortgage
lending was flat to down.
U.S. crude oil demand has been near or slightly below what is expected for this
time of year. The domestic rig count increased over the past six weeks, with
most of the gains directed to oil. More land rigs are under construction, and
some are being upgraded to support faster and deeper drilling. International
drilling also rose in November, particularly in the North Sea. (Data show that
international activity fell sharply in October, but contacts believe it was
a statistical aberration because an unusual number of rigs were in transit instead
of working.) Conditions in the oil field services and machinery sectors are
improving, and most segments of the industry are busy and enjoying higher prices,
growing backlogs of work and equipment orders, and expectations that their markets
will remain strong.
Contacts report capacity constraints in some areas, but there appears to be
potential for continued expansion in oilfield equipment manufacturing, oilfield
construction and shallow offshore drilling. There have been some reports of
short supplies of steel products in the oil patch--including drill pipe, downhole
tubing, and anything made of stainless steel. Most respondents noted capacity
constraints in labor-intensive oilfield services where people have to be especially
well trained and qualified--such as fracturing, pressure pumping or tubular
makeup. In addition, rental rates have improved for rigs capable of drilling
deep water because many rigs were moved to other areas of the world that promised
greater returns. The oilfield services that could not leave with the rigs--such
as downhole fluids, supply boats, and helicopter services--are in excess supply.
Rain improved soil moisture conditions but halted planting and harvest in some
areas. Supplemental feeding of livestock was active in the wet parts of the
district. Estimates of Texas cotton production were revised up to 7.7 million
bales, this will be an increase of 78 percent from 2003 and 27 percent from
the record 1949 harvest. Strong U.S. production has pushed down prices for cotton,
soybeans and corn. Contacts say demand is unchanged for most crops, but they
hope that the weaker U.S. dollar may boost exports. Strong demand for calves
and feeder cattle continue to boost cattle prices.
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Twelfth District--San Francisco
The Twelfth District economy expanded solidly in October and early November,
maintaining the pace of growth of the previous survey period. In terms of inflation,
retailers reported stable prices despite increasing costs and makers of IT products
noted ongoing price declines for many of their goods and services. Other contacts
continued to comment on the higher cost of energy, shipping, and building materials.
Wage increases remained modest, but rising benefits costs continued to push
up total compensation. Retail sales reportedly were solid and demand for District
services remained strong. District manufacturing activity was mixed, with some
sectors reporting solid growth and others noting some softening. District agricultural
producers reported strong demand for most products. Activity in District residential
real estate markets generally was robust, with slight moderation in some areas.
Contacts indicated modest improvements in commercial real estate; office and
industrial vacancy rates fell slightly in several markets. District banking
and financial conditions were little changed, with solid overall loan demand
and good credit quality.
Prices and Wages
In terms of inflation, District retailers reported stable final prices despite
rising costs for wholesale merchandise and shipping; retailers noted that they
continue to hold the line on prices, taking cost increases out of margins. Makers
of IT products reported additional price declines for some of their goods and
services. Consistent with softer IT investment, price declines for some types
of semiconductors reportedly accelerated. Several other contacts noted increases
in transportation costs--land, sea, and air--and some reported paying surcharges
on international shipping. Respondents continued to comment on the higher costs
of energy and building materials. Wage and salary growth remained modest overall,
although most District businesses continued to report that increases in benefits
costs were pushing up total compensation bills.
Retail Trade and Services
Reports from District retailers indicated solid retail sales in October and
early November. Recent sales have boosted expectations for the coming holiday
season. Despite a relatively good holiday sales outlook, contacts reportedly
are keeping inventories and seasonal hiring in line with last year. In contrast
to other retail goods, sales of autos slowed somewhat, reflecting soft demand
for domestic brands; sales of foreign makes remained solid. Slower sales of
domestic makes reportedly left some District auto dealers with unplanned inventory.
Contacts reported robust demand for District services. District seaports continued
to handle very high volumes, boosted by surging imports and a pickup in exports.
The volume of traffic, especially on the import side, has caused considerable
congestion, resulting in a backlog of unloaded inbound ships in southern California.
Contacts reported that shipping lines recently increased their prices for ground
and sea transport in response to the bottlenecks. District travel and tourism
also has been vigorous, with increases in both domestic and international traffic.
Contacts noted improvements in hotel occupancy and increases in average daily
room rates in many markets.
Conditions in District manufacturing were mixed across industries in October
and early November. Makers of machine tools reported a pickup in new orders
for their products, allowing them to work down previously accumulated inventories.
Improved sales of lumber, wood, and other building products boosted production
in that sector. Demand for apparel and textile products was robust in recent
weeks. In IT manufacturing, semiconductor orders and sales were flat; inventories
of chips increased and capacity utilization dropped slightly. Respondents at
IT firms other than semiconductors noted that demand softened relative to earlier
in the year.
Agriculture and Resource-related Industries
District agricultural producers reported strong domestic and foreign demand
for most agricultural products. Agricultural exports continued to rise. District
natural gas providers reported a slight rise in both wholesale and retail prices.
The high and rising natural gas prices have kept drilling activity at full capacity.
Real Estate and Construction
Demand for residential real estate generally remained strong, although in some
areas the pace of home sales and price increases slowed slightly from previous
rapid rates. On the commercial side, contacts indicated modest improvements;
office and industrial vacancy rates edged down in several markets. The robust
demand for homes, improved demand for commercial properties, and some increased
public spending kept overall construction activity at high levels. Contacts
noted that the supply of some construction materials, such as steel, improved,
but other building materials, such as cement, continued to be in short supply.
District banking contacts reported little change in overall loan demand or credit
quality in recent weeks. Construction lending remained strong and commercial
and industrial lending edged up slightly in some areas. Residential mortgage
lending continued to soften, pulled down by a drop in refinancing activity,
but remained at high levels. Contacts reported that loan quality remained good.
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