June 13, 2007
Federal Reserve Districts
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Economic activity in the Fourth District grew at a modest pace during the past six weeks. In general, manufacturing output was stable to increasing, although District auto plants reported decreased production during April. Activity in commercial construction held steady with backlogs reportedly at acceptable levels. New home inventories are moving toward more normal levels, but sales remain at low levels. Further, there is a general consensus among builders we spoke with that residential construction has yet to bottom out. Most District retailers reported disappointing sales which were attributed to unseasonable weather and high gasoline prices. Loan demand at banks has been flat to slightly up with stronger demand in the commercial sector. Energy production was mixed. On balance, the demand for trucking and shipping services has softened a bit.
On net, reports point to a slight increase in employment levels across the District with little wage pressure. Staffing firms reported positive trends in job openings with an increase in the number of permanent openings; however, our contacts told us that the number of job seekers declined since mid-April and year-over-year. Hiring demand was greatest in the service industries including health care, insurance, finance, and administrative. Manufacturing openings decreased. Almost all manufacturers, commercial builders, and coal producers reported that input prices are rising especially for metals and petroleum-based products.
Almost all manufacturers reported that capital expenditures were on plan since mid-April with half of the respondents saying they expect to increase spending in the next 12 months. Our contacts tell us that funding is readily available--primary sources include equity and bond issuance or internal resources. Industries planning increased capital expenditures include machinery, aerospace, food processing, structural metal products, autos, and petrochemicals. Although some of the additional capital spending is aimed at increasing production efficiencies, less than half of the manufacturers expect to see higher productivity. A majority of producers reported a rise in input prices--particularly for metals--over the past six weeks and on a year-over-year basis. In response, about half of our contacts said they increased their prices or used surcharges to pass through increased costs. Only a few of our contacts reported increasing the size of their workforce during the past six weeks including those who recalled laid-off workers. Hiring in the near future is expected to be very slow. Little wage pressure was reported.
Most of our commercial contractors tell us that business has been stable to very good since mid-April; however, on a year-over-year basis their reports were more mixed with a third saying business is down. Segments showing strong activity include retail, public works, education, and some manufacturing. When questioned about new business inquiries, a majority of respondents said they were stable or declining. Opinions regarding backlogs varied, but overall they are at acceptable levels. Almost all contractors reported price increases for building materials--especially steel and concrete--and fuel. Profit margins were unchanged as builders were able to pass on most of the increased costs. Access to capital is readily available with banks being cited as the primary source.
Reports by oil and gas producers contrasted with those of their coal counterparts. Resource development and demand were characterized as high. Production levels are flat to slightly up since mid-April and on a year-over-year basis. Capital expenditures for business expansion remain on target for the year. Funding for investment is easily available coming from internal sources and private investors. Material and equipment costs were flat to up slightly. All our contacts told us they are currently hiring and anticipate continued workforce expansion.