November 29, 2006
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Prepared at the Federal Reserve Bank of Atlanta and based on information collected before November 20, 2006. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Most Federal Reserve Districts reported continued moderate growth since the last report. However, New York and Richmond observed that growth accelerated, whereas Dallas said the pace of activity continued to decelerate from high levels, and Atlanta described activity as mixed.
Despite continuing softness in automobile and housing-related sales, most Districts reported that consumer spending increased during October and early November, and the retail sales outlook for the holiday season was cautiously optimistic. According to most reports, growth in other service-producing industries remained generally solid. Manufacturing activity was positive overall, with the weakest reports concentrated among auto and housing-related producers. Reports on housing markets continued to indicate an overall decline in single-family home sales, and there were some reports of lower home prices. Indicators of single-family construction continued to weaken in most Districts. However, housing demand continued to be strong in a few specific markets, and nonresidential activity generally improved. Many Districts noted a continued slowing in mortgage lending, while reports on other lending were mixed. Some Districts reported a slight increase in delinquencies.
A number of Districts continued to report that labor markets were tight, especially for high-skilled occupations. Wage growth remained generally moderate, although some Districts gave accounts of stronger wage pressures for some specialized professions. Most Districts reported that prices moderated for construction materials and energy products.
Most Districts reported continued softness in vehicle sales, led by weaker sales for the Big Three U.S. auto makers. Slow or declining sales were noted by Philadelphia, Cleveland, Kansas City, Dallas, and San Francisco, and high vehicle inventories were reported by several Districts. The only account of improved vehicle sales came from St. Louis, while Chicago described auto sales as steady.
Services and Tourism
The Atlanta, Boston, Minneapolis, New York, and Richmond Districts indicated that temporary staffing firms experienced solid demand for their services, although Chicago and Dallas noted that the demand for temporary workers had softened. The Atlanta and Cleveland Districts reported disappointing demand for freight services. Atlanta noted that much of the weakness was concentrated in businesses specialized in moving building materials, while Cleveland reported softness for shipments of auto-related products. St. Louis noted that the local freight transportation sector was expanding. Dallas observed that transportation demand was good, although contacts are anticipating slower growth in coming months.
Reports from the tourism industry were generally positive. Atlanta said that the Mississippi Gulf Coast gaming revenues returned to near pre-Katrina levels in October on the strength of re-opened casinos. Kansas City noted continued high hotel occupancy and solid airport traffic. Boston reported that tourism was currently "going gangbusters" and that business travel was strong. Richmond and New York also observed that tourism was stronger than in the last report.
Real Estate and Construction
According to most reports, nonresidential markets improved since the last report. Strengthening demand for office space was seen in the Boston, Dallas, Kansas City, Minneapolis, New York, and Philadelphia regions. However, some slowing was noted in the Chicago District. Atlanta noted that the overall level of nonresidential construction remained modest. In the San Francisco District, commercial and public project activity continued to expand, although the pace of growth was slower than earlier in the year.
Banking and Finance
Labor Markets and Prices
Wage growth remained generally moderate, but Boston, New York, and San Francisco reported faster wage growth for some specialized professions. San Francisco noted continued rapid wage growth for health care, finance, and construction workers. According to Boston, pay levels for professional and technical jobs were being boosted in order to recruit new workers and reduce staff turnover. Employers in the Philadelphia District indicated that wages have been rising more rapidly in the past few months than earlier in the year, whereas the pace of wage increases was steady according to Chicago.
Most Districts reported that prices moderated for construction materials and energy products. Kansas City noted that prices for some building products have moderated because of the combination of lower demand and reduced transportation costs. However, Minneapolis reported further price increases for roofing shingles and foam rubber, and Cleveland noted that prices for petroleum-related products remained high. Atlanta and Chicago observed that lower energy prices had led to a decline in some fuel surcharges. According to Philadelphia, price increases were not as widespread as they were earlier in the fall. Richmond said that prices for manufacturing inputs and finished goods rose since the last report, and Chicago noted that toolmakers and food processors reported raising prices.
Agriculture and Natural Resources
Activity in the energy and mining sectors was generally robust in late October through mid-November. Dallas, San Francisco, and Minneapolis reported that energy extraction activity was strong, while Kansas City noted that activity declined moderately but remained high by historical standards. Atlanta said that much of the post-hurricane infrastructure repair work had been completed in the Gulf of Mexico, and Dallas noted that the Gulf Coast refineries are now operating at high levels.