March 12, 1997
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Prepared at the Federal Reserve Bank of St. Louis and based on information collected before March 3, 1997. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
District economies generally continue to expand at a relatively moderate pace. Retail sales are up in most districts from a year ago. Most districts report high levels of manufacturing activity, with only pockets of weakness. Tight labor markets still dominate in almost all parts of the country. Nevertheless, wage gains generally remain moderate. Price pressures, such as those reported by most retail and manufacturing contacts, appear to have been temperate. Most districts report strong residential real estate markets, with many citing increases in year-over-year building permits, increases in new or existing home sales and rising home prices. Commercial real estate markets continue to strengthen, with many districts reporting declining vacancy rates, rising rents and new nonresidential construction activity. Loan demand conditions are decidedly mixed across districts in all major categories of loans—commercial, consumer and real estate. Most districts report that prospects for livestock producers have brightened recently. Despite moderate drops in oil prices, activity has picked up noticeably in the energy extraction industries.
Vehicle sales are mixed across districts. The Kansas City district reports slightly higher auto sales levels, while the Minneapolis district notes strong sales of pickup trucks. Car sales in the Philadelphia district remain unchanged, while the Cleveland and Dallas districts note slower-than-expected sales. Vehicle inventories are generally adequate, although a few reports of shortages of popular vehicles have been received.
Auto suppliers in both the Atlanta and Boston districts and heavy-duty truck manufacturers in the Chicago and Cleveland districts report strong business, while the San Francisco district notes that the aircraft and high-technology industries in the Pacific Northwest are expanding. In the Philadelphia district, metal and chemical products are showing recent strength, while furniture and home furnishings producers in the Boston, Chicago and St. Louis districts report that orders are up.
Most districts are experiencing an ongoing contraction in the apparel industry, with some of this production heading overseas. Several districts also note that their paper and textile industries are in decline. The New York district notes a moderate slowing of manufacturing activity in New York City, and the San Francisco district reports that the electronics industry in California has slowed somewhat. Growth in the steel industry is slowing in the Chicago district, while remaining strong in the Cleveland district.
Wages and Prices
Aside from higher raw materials prices reported in a few districts, price increases at retailers and manufacturers—both on the input and output side—have generally been temperate, as many districts report that competitive pressures have stemmed price hikes. The Boston, Cleveland, New York, Philadelphia and Richmond districts report that retail prices are “mostly flat” or “steady.” Moreover, in the Atlanta, Boston and Cleveland districts, wage and input price advances have been offset or negated by increased productivity gains. Materials and finished goods prices have reportedly accelerated in the Atlanta and Richmond districts; however, contacts suggest that these increases may be temporary.
Construction and Real Estate
Commercial real estate markets continue to improve in most districts. Declining office vacancy rates and rising rental rates are reported in the Atlanta, Dallas, New York, Philadelphia and Richmond districts. New nonresidential construction is reported in the Atlanta, Dallas, Minneapolis, Richmond and San Francisco districts. Contacts in the Chicago, Cleveland and St. Louis districts also describe their commercial real estate markets as strong.
Banking and Finance
Consumer loan demand is reported to be increasing, but at a slower rate, in the Chicago district and mixed or flat in the Atlanta and Cleveland districts. The Philadelphia, Richmond and St. Louis districts report declines in consumer loan demand. There appears to be no consistent trend in consumer loan quality; the Cleveland and New York districts report rising delinquencies, while the Atlanta and San Francisco districts report improving consumer loan quality. Residential mortgage demand is mixed. The Atlanta, Philadelphia and Richmond districts report increases in residential mortgage demand, while the Kansas City, New York and St. Louis districts report decreases.
Agriculture and Natural Resources
In the natural resources industries, the Dallas, Kansas City and Minneapolis districts report that their energy extraction industries are experiencing an uptick of economic activity; this has occurred despite modest drops in crude oil prices. The Dallas and Minneapolis districts also report higher lumber prices, which, in Minneapolis at least, have been passed on to builders.
Weather-related problems have and will likely continue to affect economic activity in many districts. Severe winter weather in the Minneapolis district has reportedly hampered weight gains in the cattle industry. The Minneapolis district also reports a potential for the worst flooding in several decades because of substantial snowpack. Flooding and wind-related damage stemming from severe winter storms in early March have also been reported in the St. Louis district.