January 15, 2003
Federal Reserve Districts
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Overall Eleventh District economic activity remained anemic from mid-November through early January. Demand was weak for most manufacturing and service firms. Construction activity continued to soften. Retailers were disappointed by holiday sales. Although there was a slight pickup in energy activity, the gains were substantially less than would have been expected given the sharp increases in energy prices. The financial services industry reported little change in activity, including no significant changes in delinquencies or charge-offs. Agricultural conditions also were largely unchanged. Respondents say that the uncertainty about war with Iraq continues to restrain business investment.
Outside energy, weak demand, and stiff competition is preventing higher energy costs from being passed along to consumers. Selling prices were unchanged for most manufactured products. The sharp increase in natural gas and oil prices has primarily come out of profit margins for petrochemicals, where product prices are stable or declining. Downstream plastic and synthetic rubber prices, all rising sharply throughout the first half of 2002, showed no significant changes in price in recent weeks. Prices for paper products have fallen since the last Beige Book, although this was expected to be partly offset by a decline in the price of some inputs, such as wood derivatives. Inventories are up for some construction-related products, such as cement and glass. While there were scattered reports of price increases in the service sector, airlines and retailers reported stiff competition and price declines. Retailers said that inventories are in good shape.
Demand was unchanged for food products and primary metals. Apparel producers said demand was unchanged or a little slower than expected. Demand for paper products was better than expected, according to contacts, who said that while there has not been much change over the past month, sales have been higher than a year ago.
Demand for construction-related manufactured products accelerated its decline over the past six weeks. Continued weakness in commercial construction along with reduced residential construction was blamed for the slowdown. Sales of lumber, wood products, stone, brick, and glass were below year-ago levels. Sales of fabricated metals were slightly above last year's levels, however, buoyed by construction of schools, hotels, and churches.
Contacts in the high-tech manufacturing sector report that conditions remained flat to slightly improving. Business demand was weak, but consumer demand is increasing slightly. Inventories are reported to be very lean for producers and retailers.
U.S. refinery utilization was up nationwide, but activity was down slightly along the Gulf Coast. Supplies to several Gulf Coast refineries are being impaired by the loss of crude oil from Venezuela, which forced a reduction in operations at some refineries. Other refiners have been able to buy enough crude oil on the spot market to maintain operations. There is no indication of improvement in demand for petrochemicals. Overcapacity remains a significant problem for some products, such as ethylene.
Demand for transportation services remained weak, although some airlines reported better than expected holiday traffic. Airlines continue to develop war contingency plans to analyze potential implications of war with Iraq, as well as risks resulting from recent bankruptcy filings by several major players. Cutting costs, improving efficiency, and fine-tuning existing capacity remain top priorities for airlines to return to profitability. After the bankruptcy filings, employees in the industry find themselves under intense pressure to provide wage concessions and boost productivity.
Construction and Real Estate