November 26, 2003
Federal Reserve Districts
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Economic conditions in the Third District were improving in November. Manufacturers reported increases in orders and shipments for the month. Retail sales of general merchandise picked up in early November after slipping in October. Auto and light truck sales also rebounded somewhat after dipping in October. Bank lending has been advancing, with gains in business and residential mortgage lending but little change in consumer loans outstanding. Commercial real estate markets in the region remain soft, with lackluster leasing activity and declining rents. Residential real estate construction and sales continued to be strong.
Looking ahead, contacts in the Third District business community expect business activity to continue rising modestly. Manufacturers forecast increases in shipments and orders during the next six months. Most of the retailers surveyed in early November forecast year-over-year sales gains of a few percent for the upcoming Christmas shopping period. Bankers expect moderate growth in lending into next year. Commercial real estate companies expect the region's office markets to firm up slightly in 2004, and residential real estate agents and builders anticipate a nearly steady sales rate during the year.
The region's manufacturers expect the upward trend to continue. More than two-thirds of the firms contacted for this report expect increases in shipments and orders, and only a few expect decreases during the next six months. Area manufacturing firms plan to increase production through a combination of additional work hours and added employees. More local manufacturers are scheduling increases rather than decreases in capital expenditures in the next six months.
Third District retailers expect sales for the Christmas shopping period to be slightly above last year's results. Their forecasted increases are in a narrow range of 3 percent to 4 percent, in current dollars. Although merchants believe consumer confidence is building, they expect sales growth to be limited because shoppers are very price conscious and there are no high-demand items to boost spending this season.
Auto dealers reported a relatively sharp drop in sales in October, compared with the prior month and year, but they said sales were picking up in early November. Some dealers said an increase in manufacturers' incentives in recent weeks has helped boost the sales rate. Dealers said the outlook is uncertain, but they do not foresee a big turn to a lower or higher sales rate in the immediate future.
Bankers in the District expect moderate growth in lending to continue into next year. They expect business lending to rise somewhat more strongly in the new year, and they anticipate a fairly steady rate of residential lending for purchase mortgages, but they expect further declines in refinancings. Bankers believe consumer lending will rise modestly if employment gains persist, but some said that if interest rates move up consumers' ability and willingness to borrow could weaken. In general, bankers in the District indicated that credit quality for both personal and business loans has been improving. Several noted that there is strong demand in secondary markets for problem loans, and they have sold off significant amounts of troubled credits.
REAL ESTATE AND CONSTRUCTION
Residential real estate agents and homebuilders reported that sales have been steady or rising in recent weeks. Price appreciation for both new and existing homes was said to be steady as well, and some builders indicated that the percentage of buyers who order upgraded features in new homes has been increasing. Homebuilders and real estate agents generally expect the pace of sales to continue near its current rate into next year. They believe an improving economy will support a high sales rate even if mortgage interest rates begin to move up.