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Economic activity in the Fourth District has weakened further since our last report. The downward trend in factory output and steel shipments that began late in the third quarter of 2008 continued. Residential construction remains very weak, with no improvement expected during 2009, while commercial builders reported a significant slowdown in construction activity. Sales by District retailers did show a slight improvement, but purchases of new motor vehicles remained at very low levels. Even though industrial demand has been falling, there was little change in energy production. Freight transport volume remains at low levels. Finally, regional bankers told us that commercial and industrial lending is flat to down, while community banks experienced some growth in C&I loans.
Employment dropped across all industry sectors except energy and healthcare. Staffing firms reported an overall decline in job openings as well. Given the weak labor market, wage pressures are contained. Capital spending has been trimmed back significantly from 2008 levels, and further cutbacks are contemplated. Almost all of our respondents affiliated with manufacturing, construction, and energy companies report that raw materials prices were stable or falling.
Output by most District factories remained at low levels during the past six weeks. Any increased production was attributed to seasonal adjustments or the exit of market competitors. On a year-over-year basis, factory output fell by more than 25 percent on average. Respondents expect demand will remain very soft during the next few months. Almost all steel producers and service centers reported a worse-than-expected slump in shipping volume. The only end markets cited as showing some stability were energy and aerospace. Further, respondents believe that the demand for steel will remain at very low levels through at least the first half of 2009. District auto production declined precipitously during January on a month-over-month and year-over-year basis. The declines were felt by both domestic makers and foreign nameplates. A significant part of the downturn on the domestic side is attributable to an extended year-end shutdown of a small-car assembly plant and the permanent closing of a plant that produced SUVs.
Half of our contacts said that their companies have trimmed back or halted capital expenditures during the past couple of months. Further, most of them expect additional cutbacks or a freeze on spending during 2009. We heard only a few reports of customers falling behind in payments on their accounts receivable. Suppliers to the residential construction industry cited difficulties obtaining credit. A majority of our contacts told us that raw materials prices, especially for metals, have fallen since our last report. Product pricing remains relatively stable, with some reductions noted. Manufacturers expect little inflationary pressure during 2009. Almost all of our survey respondents have laid off employees or increased the number of nonproduction days. Predictably, wage pressures are contained.
The residential construction industry remains very weak. Two contractors noted that January sales were slightly better than anticipated, and most of our contacts reported a rise in Internet and foot traffic. Nevertheless, builders are not expecting an industry turnaround through 2009, which they attributed to a lack of consumer confidence, tight credit, and excess inventory. There has been little change in the list prices of new homes, though builders are discounting. We continue to see some moderation in the prices of building materials and labor costs. General contractors and subcontractors reported minimal staff reductions.
Almost all the commercial builders we contacted told us there has been a significant slowing in construction activity during the past couple of months, and they expect this trend will continue through 2009. The only market segments cited as showing some stability were public works and energy. Contractors continue to pare down their backlogs, while inquiries have fallen off. Bidding on any new projects is very aggressive, as is subcontractor pricing. Construction materials prices have declined, especially for metal products. A majority of our contacts have laid off employees.
January sales for District retailers improved slightly on a month-over-month basis across nearly all industry segments. However, most survey respondents expect sales will flatten out or decline in the upcoming months. The exception is food sellers, who anticipate a small pickup in sales. On balance, there has been little change in vendor or retail pricing since our last report. Accounts from auto dealers show that purchases of new vehicles remain at very low levels, while used vehicles sales have improved. Dealers are not expecting an industry turnaround during the next few months. We heard numerous reports of retailers and auto dealers eliminating sales and front office positions and cutting back on store hours. Capital expenditures by retailers have been trimmed back significantly from 2008 levels.
Regional bankers told us that commercial and industrial lending is flat to down, while community banks reported increased demand for C&I loans. A majority of banking executives experienced some upward pressure on loan rates. On the consumer side, lending is stable to up, with several bankers commenting that home equity lines of credit remain the bright spot in their loan portfolios. Pricing for consumer loans showed little change. Refinancing applications for residential mortgages remain at high levels. Credit quality for consumer and business loan applicants has deteriorated, while the number of loan delinquencies increased across nearly all categories. Still, most contacts do not anticipate any further tightening of credit standards. Core deposits rose since our last report, with several bankers noting that deposit pricing is still very competitive. Major regional banks cut staff significantly, while community banks trimmed staff through controlled attrition. Several respondents' institutions reduced or eliminated merit increases.
On balance, energy production has been stable during the past six weeks, with little change expected during the upcoming months. Nevertheless, nearly all of our contacts commented that industrial demand has been falling. Further, most oil and gas producers significantly reduced drilling activity. Prices received for oil and natural gas continued to drop, while coal prices were stable. For the most part, materials and equipment costs were stable or falling. Capital expenditures remained on plan; however, several producers told us that they intend to lower spending during the next few months. Access to credit was cited as an issue by an increasing number of our respondents. Employment levels were stable with little wage pressure.
Shipping volumes for freight transport service companies remained at low levels, with little volume change over the past six weeks. On a year-over-year basis, January shipments were down 15 percent on average. The only market segment exhibiting some stability was energy, particularly coal. Expectations call for activity to remain at current levels or to decline further during 2009. Few problems in collecting on accounts receivable were reported, other than some slowdown in payments. Several trucking executives noted a small increase in the price of diesel fuel and significant increases in turnpike tolls, which they are unable to pass through to customers. Little change in capital spending was reported; though most companies have reduced expenditures to the replacement level. Several trucking executives are laying off drivers as part of their capacity reduction plans, while others did not replace drivers who have left voluntarily.