October 12, 2006
Federal Reserve Districts
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The District's economy showed modest growth since mid-August; however, growth was mixed and there is concern about the sustainability of lower energy prices and a continuing slowdown in the auto sector and residential construction. Most district manufacturers reported steady production with production forecasted to remain at current levels for the next six months. However, reduced activity in the auto sector is tempering the outlook for some manufacturers. Retailers experienced mixed sales activity with lower gas prices and cooler weather helping boost sales at some District outlets. Commercial builders reported strong activity but were concerned that inquiries were beginning to taper off. New home sales continued to be soft with several builders saying they have no backlog. Banking contacts reported a gain in core deposits and an increase in corporate borrowing. And the demand for trucking and shipping services continues to soften.
On net, hiring across the District was steady. Staffing firms reported job openings were moderately increasing in August and September with demand coming from professional business services and healthcare. Wage pressures were not seen as an issue at this time. Almost all contacts said that the rise in input costs has moderated and cite a drop in energy prices as the reason. Manufacturers attempting to raise their prices met with a mixed degree of success. Retailers generally reported holding their prices steady.
Production at the District's nondurable goods facilities has been stable since mid-August with higher levels reported on a year-over-year basis. Expectations for the next six months are flat to up with some manufacturers saying that the auto industry could affect their production levels. Most contacts reported idle capacity--food producers being the exception. A majority of manufacturers said capital expenditures were on target with no increases anticipated during the next few months. Input costs were mixed following oil price fluctuations. None of the contacts reported increasing employment in the past six weeks and few said they plan to hire in the near future. Wage pressures are contained.
Overall, vendor prices have remained stable since mid-August which is reflected in stable prices for customers. Contacts reported limited wage pressures and are planning normal Christmas hiring.
Most contacts said that new car sales improved in August, but fell in September. August is normally closeout time as dealers make a push to sell the remaining prior year's inventory. SUVs continued to sell poorly and used car sales were consistent with sales in past months.
The District's commercial contractors reported strong activity since mid-August with an increase in business on a year-over-year basis. Most contacts anticipate activity will remain strong through the first half of 2007 due to project backlogs which remain at high levels--for one contractor, the highest in five years. However, inquiries seem to be tapering off slightly which could result in slowness about a year out. Segments reporting stronger activity were health care, education, and public works. Material cost increases that were prevalent over the past few months are slowing or have stabilized. Margins for a few contacts have increased slightly due to a slower acceleration in costs. Contractors reported little change in the size of their labor force.