January 20, 1999
Federal Reserve Districts
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Economic activity in the Third District was moving up as the new year began. On balance, manufacturers reported a slight improvement in business conditions, although weak Asian markets continued to hamper recovery for some industrial sectors. Retail sales for the holiday shopping period met or came close to meeting most retailers' goals, and auto sales remained strong. Bankers generally indicated that lending to both consumers and businesses was increasing and that mortgage activity was still robust.
The outlook in the District is positive. Manufacturers expect orders to increase during the first half of the year, and they plan to step up capital spending. Most retail executives and auto dealers believe firm consumer confidence will support a continued high level of sales. Bankers expect further economic growth in the region this year; however, they believe the pace of expansion will ease somewhat compared to last year's.
The regions' manufacturers predict further improvement in the first half of the year. Nearly half of the firms contacted for this report expect orders and shipments to increase, twice the number that anticipate slower business. Capital spending is also forecast to grow, and increases in working hours are scheduled for the first and second quarters. Despite current downward pressure on industrial prices, the consensus among industrial managers surveyed at year-end is that prices will rise in 1999.
Auto dealers reported a good pace of sales in December, above the rate in December 1997. Pickup trucks, sport utility vehicles, and minivans continued to sell strongly, and some dealers indicated that supplies of these vehicles have not kept up with demand. Dealers said the level of manufacturers' incentives remains high and low financing rates were common.
Both auto dealers and general retailers said consumer confidence seems high, and they expect consumer spending to stay strong. Some retail and banking contacts expressed concern that consumer debt might be approaching levels that would tend to curtail spending, but they did not foresee serious retrenchment as long as employers' demand for workers remains healthy and interest rates do not rise.
Commercial and industrial loan demand has picked up, according to several bankers contacted in early January, although competition among banks and other lenders remained keen. Some commercial bank lending officers said companies seeking new or enlarged credit facilities were generally very well capitalized and were looking to establish financing arrangements in anticipation of expanding business this year. Overall, however, bankers indicated they and their business borrowers were expecting slower economic growth this year compared to last year.