July 25, 2007
Federal Reserve Districts
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The economy in the Fourth District continued to grow at a modest pace during the past six weeks. In general, manufacturing output was stable to increasing with District auto plants reporting higher production during May. Activity in commercial construction is steady to improving with backlogs at acceptable levels. New home sales improved slightly, but sales remain down on a year-over-year basis. Most home builders said that inventories have returned to acceptable levels. Retail sales in the District were flat to increasing slightly. Commercial loan demand increased while consumer lending was stable to declining. The mortgage market continues to be slow. Oil and natural gas production showed little change. And the demand for trucking and shipping services was mixed.
On net, reports point to a slight increase in employment levels across the District with wage pressures limited to the energy sector and some highly technical and professional occupations. Accounts given by staffing firms reveal positive trends in job openings with an increase in the number of permanent openings. Our contacts also stated the number of job seekers was steady to increasing since late May and on a year-over-year basis. About half of our staffing representatives told us that wages are rising or they anticipate increases in the near future. A slight majority of manufacturers and builders said that input and energy prices are rising or remain at high levels.
Plant utilization rates were at normal levels to 100 percent capacity. Almost all manufacturers reported that capital expenditures were on plan since late May with half of the respondents saying they expect to increase spending in the next 12 months due primarily to increased demand. Industries planning increased expenditures include aerospace, food processing, autos, petrochemicals, and construction supply. Manufacturers were evenly split when asked about the direction of input prices. The most often cited increases were for metals, fuel, and agricultural products. Only a few of our contacts increased their own prices and few anticipate raising prices in the near future. The manufacturing workforce rose slightly during the past six weeks. Hiring in the near future is expected to be very slow with little wage pressure reported.
Most commercial contractors told us that business is steady to improving since late May; however, on a year-over-year basis, more than half reported that business has slowed slightly. Segments showing strong activity include healthcare, public works, and manufacturing. Nearly all respondents are satisfied with their current backlog. Contractors were mixed in their assessment of material costs with half stating that steel, concrete, and fuel increased; however, most held their own prices steady over the past six weeks.
Plans for four coal liquification plants to be located in the Ohio Valley have been announced. Two of the plants would produce jet and diesel fuel while the other two would produce liquid coal for power generation. Estimated value of the four plants is $10 billion. Each would employ 200 to 300 full-time workers.
Transportation Demand for trucking and shipping services was mixed during the past six weeks with reports ranging from strong growth to softening. Industry representatives tell us that it is becoming very difficult to pass on non fuel-related price increases. However, about half reported that they were able to pass on rising fuel costs using surcharges. In general, capital expenditures have been flat to declining. Pre-buying engines in 2006 due to new EPA regulations was the most often cited reason for the decline. Wages have remained stable since late May.