|Skip to content
Over the past six weeks, Eleventh District economic activity continued to slow slightly to a modest rate of growth. Manufacturing activity grew at a slightly slower pace than reported in the last Beige Book, and oil service and machinery companies reported that their business has slowed. Agricultural producers reported that dry conditions were causing problems in parts of the District. Demand for business services continued to increase but at a slightly slower pace. Financial service contacts reported steady credit quality and increased consumer borrowing. Construction activity continued to increase. Retailers said that sales remained quite strong.
Price movements were mixed over the past six weeks, with increases for some construction-related materials, produce imported from Mexico, wholesale gasoline, some gasoline inputs, and transportation services. Contacts reported declines in the prices of jet fuel, natural gas, crude oil, oil rig rental, memory chips, telecommunications equipment, apparel, coffee, finished metal products, soft lumber, aluminum, steel, several petrochemical products and autos. Contacts reported that crude oil prices weakened in late May when only 58 percent of the production cuts agreed upon by OPEC and non-OPEC countries had actually occurred. Respondents reported that continued weak Asian demand for petrochemicals has put increased downward pressure on prices of olefin and polyolefin as well as downstream products like thermoplastics. Paper producers said that they expect new capacity to dampen future prices.
Contacts reported continued difficulty hiring skilled workers and "skyrocketing" recruiting costs. Some respondents reported targeting wage increases to skilled workers in short supply, such as programmers, R&D workers, engineers, accountants, managers and administrators.
Manufacturing activity grew at a slightly slower pace than reported in the last Beige Book. Sales of boxes, telecommunications equipment, semiconductors, chemicals, and some metals declined. One contact reported that declining sales to oil-industry customers has hurt some metal producers. Respondents reported increased pulp imports were boosting inventories at mills and causing a decline in the demand for caustic soda, an input in pulp production. Domestic chemical sales remained extremely strong, but weak sales to Asia caused increased domestic supplies. Telecommunications equipment sales slowed with declines in sales to Asia and a pause in new equipment investment attributed to anticipated merger activity. Sales of food, apparel, industrial and printing grade paper, wireless phones, some electronic components and construction-related materials increased over the last six weeks. Contacts reported short supplies of brick, as well as rationing of concrete and gypsum wallboard to builders.
While business service contacts continued to report turning away business due to lack of workers, a few contacts also reported that demand grew at a slightly slower pace in the past six weeks. These contacts attributed the softening of demand to slackening in oil and gas exploration and production. Sources of strength included demand for support at customer service call centers and consulting for year-2000 office systems upgrading. Transportation services contacts reported "booming" business in trucking, an "awesome" over-65 percent load volume in passenger air traffic, and a slight increase in railroad freight volumes.
Retailers said that sales remained strong. Some contacts said that sales were stronger than expected, and one chain has increased their forecast for this year's sales growth. Contacts reported little or no increase in selling prices. Most retailers were not seeing price reductions for goods coming from Asia, but expect to in the second half of the year. Auto dealers saw total sales dip slightly from a year ago, but reported continued strength in luxury and sport utility vehicle sales.
Credit quality remained steady, consumer borrowing was up, and no respondents reported increased delinquency rates. Contacts reported that home refinancing and purchases were up, but auto financing slowed. Commercial lenders reported strong competition.
Construction and Real Estate
Residential, commercial and industrial construction activity continued to increase. However, the concrete shortage has caused cutbacks in hours worked and construction delays in some regions. In some areas of the District, office occupancy and rents increased at a much slower pace than in past months as new buildings came on line. Absorption of industrial space was strong, but increased construction has some contacts concerned about overbuilding. Contacts reported that more warehouse space is being developed with office building amenities to meet the demand for lower priced back office space.
Oil service and machinery companies reported that their business has slowed. The decline in drilling activity previously seen in oil spread to natural gas drilling in recent weeks, with many rigs taken out of service. Natural gas inventories were as much as 25 percent higher than last year, as contacts reported storing gas in hopes that summer demand will be driven up by unseasonably warm weather. Crude oil markets remained in oversupply, and U.S. storage capacity was nearly full, with inventories 6.3 percent higher than a year ago.
Dry and hot conditions caused problems in some parts of the District. Dryland planting was delayed, as producers awaited adequate moisture. Dry pasture conditions led to culling of some cattle herds. However, planting on irrigated land was winding down, and steady irrigation allowed those crops to make good progress.