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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of Cleveland and based on information collected before October 15, 2001. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a representation of the views of Federal Reserve officials.

Reports from all Federal Reserve Districts indicate weak economic activity in September and the first weeks of October. In all Districts, the tragedy of September 11 was followed by a short period of sharply reduced activity. Business activity recovered quickly from some aspects of the shock, such as reduced air cargo capacity, but longer-run effects are more difficult to assess. Retail sales, other than autos, were slightly lower than before September 11, but this weakness might have already been in train. The same is true for manufacturing. Insurance premiums have increased, and security precautions are disrupting productivity.

Retail sales softened in September and early October in almost all Districts. Auto sales fell at the beginning of the period but have now rebounded following new zero-financing incentive plans. Both shipments and orders for a broad spectrum of manufactured goods, ranging from steel to semiconductors, are weak in most of the country. Construction generally slowed during the period. The softness in consumer spending, manufacturing, and construction is affecting the labor market, where layoffs and plant closings have been reported in many industries, from financial services on the East Coast to media and advertising on the West Coast to auto parts in the central states. There has been little upward pressure on either wages or prices, and, in some cases, they have actually fallen.

The Effect of September 11
Retail sales followed much the same pattern throughout the country. In the week following the attack, consumer spending dropped sharply for all items except those that were likely purchased in preparation for possible additional attacks. Sales of groceries, security devices, and bottled water increased; purchases of insurance also rose. One to two weeks later, consumer buying picked up somewhat, although in most Districts it was weaker than in early September. Contacts in the Chicago District note that the weakness is the result of fundamental economic causes prevailing before the attack, higher unemployment, and falling stock prices, rather than the attack itself.

The grounding of aircraft caused some very short-run effects. For example, the transport of fresh vegetables from the West Coast to the East Coast was disrupted somewhat. The supply chain of parts to manufacturers also was interrupted but appeared to recover quickly from dislocations in air transportation, as air cargo was promptly rerouted through ground networks.

All Districts except Boston and Kansas City report sharp declines in the hotel, airline, and tourism industries. In many Districts, demand dropped sharply immediately following the attack but later rebounded partially. Some cancelled conventions have been rescheduled. In Manhattan, Broadway theaters have noted some pickup in attendance after a sharp dropoff in mid-September. However, large layoffs in the airline industry may be the result of previously observed weakness in the industry, which was then amplified by the attack. Manhattan lost roughly 7 percent of its office space in the September 11 attack, but an estimated four percent will be repaired in upcoming months. Despite the damage, however, office availability increased slightly on balance in September.

The attack is likely to have a longer-term effect on manufacturing. Aircraft orders are down sharply, causing layoffs in the aircraft and aircraft parts industries in the Boston, Kansas City, and San Francisco regions. There has been an increase in demand for security products and data storage devices produced in the Cleveland and San Francisco Districts. Boston reports a large rise in insurance demand, while Atlanta, Dallas, and San Francisco report an increase in insurance premiums. The Atlanta and Chicago Districts report a fall in business productivity due to increased security precautions.

Consumer Spending
Retail sales softened in September and early October in all Districts except St. Louis, where sales were flat, and Minneapolis, where sales were considered normal, and Richmond, where sales returned to pre-attack levels. In the New York District, recent sales were well below levels of a year ago. Almost all regions reported that discount chains were doing much better than specialty stores, and luxury items did poorly. The softer sales tempered the retail sector's forecasts for the holiday season. Most Districts report sales expectations that are both more uncertain and lower than they had been in August.

Automobile sales were much weaker during the first weeks of September, but all Districts, except Boston and New York, report a rebound in sales because of zero-percent financing options that are being offered. In most cases, sales were back to normal, except in the San Francisco and Atlanta Districts, where they were weaker than normal. Atlanta and Chicago also mention that sales of trucks were down.

Industrial activity was generally weak throughout the country in September and early October. The only exceptions were New York, which reports some pickup in activity, and Richmond, which reports steady activity. Most Districts mention that shipments and orders are weaker than the year before, and, indeed, than in early September. The continued weakness in manufacturing has contributed to pessimism about when orders will improve, as many Districts report that they do not expect a turnaround until 2002.

The weakness is broadly based. The industries affected by lower shipments and orders include high-tech industries, such as semiconductors in the Boston, Dallas, and San Francisco regions, as well as the more traditional heavy industries such as steel in the Chicago and Cleveland regions. In spite of robust auto sales, the auto parts industries in the Boston, Cleveland, Dallas, and St. Louis Districts all reported difficult times. The resource-based industries such as lumber reported mill closures in the regions of Atlanta, Dallas, and San Francisco. A few industries are doing well. Cement in the Dallas region, some textiles in the Richmond region, and luxury goods in Cleveland report some gains.

Real Estate and Construction
Construction generally slowed during September and early October, although there were exceptions in some locations and in some types of construction. Commercial construction weakened in the Atlanta, Boston, Cleveland, Kansas City, and San Francisco regions and in the western Kentucky portion of the St. Louis region. Some commercial and industrial projects were put on hold in the Chicago, Dallas, Minneapolis, Richmond, and San Francisco Districts. Office builders were less active than in the past in the Atlanta, Cleveland, and Richmond regions, as well as in the city of St. Louis. Commercial vacancies rose in the Atlanta, Chicago, Kansas City, and San Francisco Districts. New York, in spite of the attack, still experienced a slight up-tick in vacancies. Office building held steady in the Cleveland District.

Residential construction rose only in Philadelphia and some areas of the St. Louis region. It held steady in the Cleveland and Minneapolis Districts and fell in the Atlanta, Boston, Chicago, Dallas, Kansas City, New York, Richmond and San Francisco Districts and some portions of the St. Louis region. In Boston, the decline followed a strong summer, so that on a year-over-year basis, construction activity was still up. In the Richmond and New York regions, the decline was seen in the construction of luxury homes. New York also reports a decline in rents in Manhattan.

Agriculture and Natural Resources
Most of the year's crops have now been harvested. Corn and soybean harvests were good in the Richmond and St. Louis regions and in the southern part of the Cleveland region, but were below normal in the Chicago and Kansas City regions and in the northern part of the Cleveland region. Prices for cattle and hogs are low. Kansas City reports that the winter wheat crop is in the ground ahead of schedule. Atlanta reports a poor cotton harvest. Minneapolis and Dallas report weather-related poor crop yields, but San Francisco notes that West Coast harvests have generally been good.

Decreases in oil and natural gas prices have led to a decline of drilling activity in the Dallas and Kansas City Districts. Decreases in steel production have caused several iron ore mines to close in the Minneapolis District.

Financial Services and Credit
Banks experienced greater mortgage refinancing activity in response to lower interest rates across Districts. New mortgage lending was also reported to have increased in all but four districts: Kansas City and San Francisco, where loan activity generally decreased in most categories, and Boston and Dallas. Atlanta, Cleveland, New York, Philadelphia, and St. Louis report consumer loans were down. Cleveland, Philadelphia, and St. Louis report increases in commercial lending, and Chicago, New York, Richmond, and St. Louis report decreases in these loans.

The Chicago, Cleveland, New York, and San Francisco Districts report that loan delinquencies were up, and credit standards were reportedly higher in the Atlanta, Kansas City, and New York Districts. Nonperforming loans were higher in the Philadelphia and St. Louis Districts.

Many Districts report layoffs in a wide variety of jobs. Large manufacturing layoffs are reported in the Boston, Dallas, Kansas City, Chicago, Philadelphia, San Francisco, and St. Louis regions. In the service sector, hotel, tourism, and airline industries laid off people throughout the country. In addition, the Dallas, Richmond, and Philadelphia Districts saw cutbacks in the retail sector, and New York reports layoffs in the financial services industry. The West Coast's media and advertising industry also experienced large layoffs.

Wages and Prices
Most Districts report little or no change in wages. Manufacturers were reducing salaries in the Boston District, and wages were down in parts of the San Francisco District. Steady wages or no wage pressure are reported in the Chicago, Kansas City, New York, and Richmond regions, as well as among temporary workers in the Minneapolis region. The Atlanta, Cleveland, and Dallas Districts report that wage pressures had subsided or were subdued. Dallas and San Francisco also report an increase in health care costs.

Most Districts report steady or declining consumer prices. Districts reporting steady retail prices included Kansas City and Richmond. San Francisco reports steady prices except for declining prices in apparel. Districts reporting lower retail prices included Atlanta, Boston, Chicago, and Dallas. The prices for manufactured goods also fell in the Chicago, Dallas, and New York regions, while they were steady in the Atlanta, Kansas City, Richmond, and San Francisco regions.

Input prices are reported as decreasing or holding steady, except in Cleveland, where they were mixed. Districts reporting price declines included Boston, Chicago, Dallas, Minneapolis, and New York. Those reporting steady prices were Atlanta, Kansas City, and San Francisco.

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Last update: October 24, 2001