April 23, 2003
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Prepared at the Federal Reserve Bank of Cleveland and based on information collected before April 15, 2003. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of the Federal Reserve officials.
Reports from the twelve Federal Reserve Districts suggested that the pace of economic activity continued to be lackluster during March and the first two weeks of April. Although Richmond observed continued modest growth, reports from Boston, Cleveland, Atlanta, St. Louis, Dallas, and San Francisco characterized economic conditions as still mixed or soft. Since the last Beige Book, New York, Philadelphia, Chicago, Minneapolis, and Kansas City noted that the recent pace of economic activity had been slower than reported earlier. The onset of the war with Iraq appeared to have some effect on sales and spending, although it is too early to ascertain the full effect of the war on both consumer and business confidence.
Reports on consumer spending were generally weak in March, but respondents attributed part of the weakness to poor weather and the onset of war. Contacts also cautioned that year-over-year comparisons of sales for March were difficult because Easter fell in late March last year but falls in the third week of April this year. Optimism remained that the retail environment would improve within the next six months.
Most Districts continued to report weakness in manufacturing, although some pockets of growth were noted in most of the reports. Businesses continued to report a cautious attitude toward spending, and commercial real estate was reported to still be in a slump. In contrast, homebuilding activity remained strong across all Districts. Mortgage lending, buoyed by refinancing activity, remained strong, and a few Districts noted some improvement in commercial loan demand. Agriculture conditions generally improved as rain and snow eased drought conditions in several Districts. Labor markets remained soft, but some Districts noted moderating layoffs or improvements in demand for temporary labor.
Although retail sales have been sluggish, most Districts indicated that their retailers were not concerned about inventory levels. Cleveland, Atlanta, and Chicago reported heavy discounting or increased promotional environments. The outlook among retailers in Boston, Philadelphia, Cleveland, and St. Louis suggested that at least a slight improvement in conditions would occur in these Districts before the close of 2003.
Reports regarding automobile sales in March were mixed: The Cleveland, Richmond, Chicago, St. Louis, Dallas, and San Francisco auto markets saw some rebound in March after slowing in February. Philadelphia, Atlanta, Minneapolis, and Kansas City, on the other hand, reported faltering auto sales in March, although Minneapolis and Kansas City saw some recovery in auto sales in early April in response to manufacturers' incentives.
Travel and tourism spending strengthened in the Richmond, Minneapolis, and Kansas City Districts, but slowed in the Chicago and San Francisco regions. San Francisco noted that international travel had weakened, due in part to the SARS outbreak in Asia. Dallas observed a decline in air travel due to the onset of the war and the SARS outbreak. Atlanta reported mixed conditions: Although international tourism fell in the District, the decline was offset by a successful spring break season.
Still, pockets of improvement in the industry were noted by more than half the Districts in this report. In Boston, companies producing hardware, semiconductors, and machine tools reported an increase in business activity, as did nondurable goods producers in the Cleveland District. Atlanta's defense-related manufacturers reported improving conditions, and the hiring of temporary workers in manufacturing rose slightly. In the St. Louis District, some auto parts producers were planning to expand their facilities. The energy-related sector in Dallas observed strong growth since the last report. Despite declining conditions at the time of the survey, manufacturers in the New York and Philadelphia Districts seemed optimistic that activity would improve somewhat within the next six months.
Construction and Real Estate
On the commercial side, weakness in construction activity persisted as none of the Districts reported solid improvements in the industry. Office vacancy rates continued to climb in the New York, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco Districts, and some Districts reported falling rental prices.
Banking and Finance