March 6, 2002
Federal Reserve Districts
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Business conditions in the Third District showed some signs of improvement in February. Manufacturers reported increases in shipments and orders. Retail sales of general merchandise have been rising modestly, and auto sales have been steady. Sales of new and existing homes have been running at a fairly high rate. However, there were clear indications that commercial real estate markets have weakened. Bank loan volumes have been flat, and slight growth in business lending has been offset by a decline in consumer loan balances.
The consensus among Third District businesses surveyed in February is that there will be slow growth in the region during the rest of the year. Manufacturers expect gains in shipments and orders. Retailers anticipate modest improvement in sales. Auto dealers expect the current sales rate to carry through most of the year. Bank credit officers generally forecast slow growth in overall lending, with gains in commercial and industrial loans as well as consumer credit but a falloff in real estate lending. Contacts in the commercial real estate industry forecast steady market conditions for the first half of the year and some increase in demand for space in the second half of the year. Residential real estate contacts expect sales of both new and existing homes to be steady through most of the year at around the current rate.
Local manufacturers have positive forecasts. Over half of the firms surveyed in February forecast increases in orders and shipments during the next six months, while around one in 10 anticipate decreases. On balance, area firms have raised capital spending plans, but increases are modest and spotty across the major industrial sectors in the region. Several chemical and plastics companies have scheduled increases in outlays for the first half of the year. Capital spending in other manufacturing sectors is likely to be flat or up just slightly.
Most area retailers said their inventories were at appropriate levels. Stores in the region have increased discounting to spur sales of winter merchandise during a prolonged spell of warm weather, but they have been conservative in their buying of spring merchandise and do not expect to make significant markdowns on spring goods. Store executives believe consumer confidence may be firming, and some have raised their sales forecasts for the year. On average, they expect sales for the year to be around 5 percent above last year, on a comparable stores basis.
Auto sales in the region were steady in February. Although below last year's high rate, the current pace of sales was described as good by most of the dealers contacted for this report, as manufacturers' incentives continued to attract car buyers. Inventories were generally described as in line with sales. Dealers expect sales to continue around the current rate through most of the year.
Bankers in the Third District expect overall loan demand to increase slowly through the year. They expect a modest economic recovery with commensurate growth in business and consumer lending, but they anticipate that residential real estate lending, both refinancing and purchase mortgage activity, will be slower this year compared with last year.
Real Estate and Construction
Residential real estate agents generally reported steady sales of both new and existing homes. Sales have been running at a fairly high rate in most price categories except for the very high end, where sales have slipped. Price appreciation has been steady, except for very expensive homes. Price appreciation for these homes has slowed in recent months. Home builders also reported steady sales, although below last year's rate. Builders' backlogs remain high. Real estate agents and builders indicated that relatively low mortgage interest rates continue to support home sales, and some real estate agents believe there has also been a shift in consumer attitudes favoring home purchases over financial investments. Real estate agents and home builders anticipate relatively steady sales at around the current pace during the rest of the year.