June 10, 2009
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Prepared at the Federal Reserve Bank of Cleveland based on information collected on or before June 1, 2009. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Reports from the twelve Federal Reserve District Banks indicate that economic conditions remained weak or deteriorated further during the period from mid-April through May. However, five of the Districts noted that the downward trend is showing signs of moderating. Further, contacts from several Districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year.
Manufacturing activity declined or remained at a low level across most Districts. However, several Districts also reported that the outlook by manufacturers has improved somewhat. Demand for nonfinancial services contracted across Districts reporting on this segment. Retail spending remained soft as consumers focused on purchasing less expensive necessities and shied away from buying luxury goods. New car purchases remained depressed, with several Districts indicating that tight credit conditions were hampering auto sales. Travel and tourism activity also declined. A number of Districts reported an uptick in home sales, and many said that new home construction appeared to have stabilized at very low levels. Vacancy rates for commercial properties were rising in many parts of the country, while developers are finding financing for new commercial projects increasingly difficult to obtain. Most Districts reported that overall lending activity was stable or weak, but with mixed results across loan categories. Credit conditions remained stringent or tightened further. Energy activity continued to weaken across most Districts, and demand for natural resources remained depressed. Planting and growing conditions varied across Districts as did agricultural input costs.
Labor market conditions continued to be weak across the country, with wages generally remaining flat or falling. Two Districts also mentioned employers' plans to scale back employee benefit programs. The Atlanta, Chicago, and St. Louis Districts reported that some state and local governments faced hiring freezes or outright job cuts. While manufacturing employment levels remained low, some Districts saw signs that job losses may be moderating. With few exceptions, Districts reported that prices at all stages of production were generally flat or falling. The notable exception to the downward pressure on prices was the widely-reported increase in oil prices.
Philadelphia reported that the primary metals, machinery, and electrical equipment industries remain especially weak, and Cleveland noted that steel shipments continue at depressed levels. Chicago commented that, apart from Asia, export demand was weak. Dallas reported that construction-related manufacturing and the petrochemicals markets remained weak, while San Francisco stated that activity in the wood products industry was depressed and that demand in the metal fabrication industry was extremely weak. Cleveland, Chicago, St. Louis and Dallas all noted weakness in automotive-related industries. In contrast, Boston, Dallas, and San Francisco indicated that high technology industries experienced some increase in activity, and Richmond noted strengthening across a number of industries. Several Districts also reported that the outlook of manufacturers has improved somewhat, though Boston, Cleveland and Kansas City mentioned that capital spending was weak.
Transportation contacts in most Districts say that shipping volume either remained at low levels or continued to decline. Contacts in the Cleveland District generally stated that while shipping volumes remain down across all market segments, the steep drop-off earlier this year has abated. Cargo and container trade in Richmond and Dallas remains at low levels, but contacts noted signs of improvement in import and export activity.
Consumer Spending and Tourism
Travel and tourism activity declined, and vacationers are tending to spend less. Business at Manhattan hotels and Broadway theaters, which had increased modestly in April, fell back in May. Bookings at resorts in the Richmond District are starting to pick up; however, they are weaker than a year ago. In the Atlanta District, promotions and discounting were said to have played a significant role in keeping theme park attendance and cruise bookings stable. Contacts from the San Francisco District said that pronounced declines in hotel occupancy rates, especially luxury hotels, were ongoing, while travel in some parts of the District remained down at double-digit rates from the previous year. However, a report from the Minneapolis District indicated that summer reservations at campgrounds and resorts are strong.
Real Estate and Construction
Commercial real estate markets continued to weaken across all Districts. Vacancy rates for commercial properties were rising in many regions of the Boston, New York, Philadelphia, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, and San Francisco Districts putting downward pressure on rents. Atlanta, Chicago, and St. Louis reported new construction projects being postponed or cancelled, and new construction in the New York, Philadelphia, and Minneapolis Districts dropped substantially. Eight Districts cited difficulty in obtaining financing as one of the primary reasons for delaying or stopping construction of new developments and for limiting sales of existing properties.
Banking and Finance
Most Districts said that credit conditions remained stringent or tightened further. Reports from Philadelphia and Cleveland expected that credit will remain tight in the near term. The credit quality of loan applicants and existing clients showed deterioration in Philadelphia, Richmond, Cleveland, and Dallas, although Richmond noted that the rate of deterioration has slowed. New York and Cleveland said that delinquencies had increased across numerous loan categories, particularly those tied to real estate. Cleveland and Kansas City reported increases in bank deposits, with the latter attributing the rise to uncertainty about financial markets.
Agriculture and Natural Resources
Energy activity continued to weaken across most Districts, and demand for natural resources remained depressed. Coal production and prices fell substantially in the Cleveland District. The number of drilling rigs operating in the Kansas City District is sixty percent below its peak last fall, and working rigs in Texas have fallen fifteen percent over the past six weeks as global demand for oil remains low. However, one production facility in the Gulf of Mexico just opened in May and is expected to make a major contribution to oil and natural gas output once it reaches full production. Wind energy projects expanded in the Kansas City and Minneapolis Districts.
Employment and Wages
In the service sector, the Boston and Cleveland Districts reported relatively stable retail employment, while the Richmond District reported continuing reductions. The Richmond, Chicago, Minneapolis, Dallas, and San Francisco Districts noted that firms providing professional services, such as accounting, consulting, and legal services, continued to report staff reductions, while the Boston and New York Districts reported weak demand for financial services workers, with ongoing layoffs at large financial firms. The Boston and Richmond Districts also reported reductions in information technology jobs. The Atlanta, Chicago, and St. Louis Districts reported that some state and local governments faced hiring freezes or outright job cuts.
In manufacturing, while employment levels remained low, several Districts saw signs that job losses may be moderating. The New York, Richmond, Atlanta, and Kansas City Districts all reported less severe employment reductions in recent weeks, with some optimism that manufacturing employment levels may soon stabilize. This, however, was balanced by reports of ongoing manufacturing employment losses in the Boston, Cleveland, Chicago, and St. Louis Districts.
Staffing services firms reported some modest signs of recovery, with the Boston, Atlanta, Chicago, and Dallas Districts all reporting some stabilization in activity or a slight improvement in employment trends. The Cleveland and Richmond Districts, however, continued to report that activity among staffing services firms was weak.
Reports from a number of Districts indicated that pricing at retail remains very soft. The Cleveland and Dallas Districts indicated that retail prices were stable, San Francisco said that they were held down by discounting, and Philadelphia noted that steady input costs were holding retail prices in check. In Kansas City, retail prices were declining and expected to soften further. Richmond's retail prices continued to rise, albeit more slowly than in the past.