March 2, 2011
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Prepared at the Federal Reserve Bank of Atlanta and based on information collected on or before February 18, 2011. 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 Districts indicated that overall economic activity continued to expand at a modest to moderate pace in January and early February. Both Kansas City and San Francisco noted that their economies expanded further. Boston and Philadelphia cited conditions as improving. New York, Cleveland, Richmond, Atlanta, and St. Louis described activity as modestly improving, while Minneapolis and Dallas experienced moderate growth. Chicago reported that although there was an increase in activity, it was at a pace not quite as strong as during the previous reporting period.
Retail sales increased in all Districts, except Richmond and Atlanta, although Boston, New York, Philadelphia, Atlanta, and Kansas City noted that severe snowstorms had a negative impact on merchant activity. Retail inventory levels were described as desirable in New York, Cleveland, Dallas, and San Francisco. Tourism improved in Richmond, Atlanta, and San Francisco, while New York and Kansas City noted a slowdown in activity as hotel occupancy rates declined. Some Districts reported a slight increase in the level of residential real estate activity, although all Districts maintained that the overall level of home sales and construction remained low. Several Districts indicated improvements in commercial real estate sales and leasing activity, including Boston, Richmond, Chicago, Kansas City, Dallas, and San Francisco. Most reports characterized nonresidential construction as weak.
All Districts, except St. Louis, experienced solid growth in manufacturing production, and new orders improved for Philadelphia, Atlanta, Chicago, Kansas City, and San Francisco. Most regions observed an increase in nonfinancial services. Boston, Philadelphia, and San Francisco reported that sales advanced for services related to information technology, while Kansas City noted softer sales of IT services.Changes in loan demand were mixed across Districts, with Richmond, Dallas, and San Francisco experiencing increased loan demand and Kansas City noting a decrease. Lending standards remained tight across most Districts. Labor markets modestly improved across the country. Boston, Richmond, and Chicago reported more permanent job placements occurring in the market, while Atlanta businesses reported a continued preference for hiring temporary workers rather than permanent workers. Several Districts described an increase in demand for staffing services, especially for high-skilled IT positions. Adverse weather conditions continued to hamper agricultural production in many Districts, but strong prices helped producers of cotton, corn, soybeans, wheat, poultry, hogs and cattle. Energy production expanded or remained stable, according to reporting Districts.
Non-wage input costs increased for manufacturers and retailers in most Districts. Manufacturers, in a number of Districts reported having greater ability to pass through higher input costs to customers. Retailers in some Districts mentioned they had implemented price increases or were anticipating such action in the next few months. Homebuilders in Cleveland and Atlanta had limited ability to pass through cost increases to buyers. Most reporting Districts noted continued strong agricultural commodity prices. Wage pressures remained minimal across all Districts; although Philadelphia, Dallas, and San Francisco noted that most wage increases were for workers with specialized skills.
Consumer Spending and Tourism
Automobile sales increased compared with a year earlier in most Districts. Chicago and Dallas observed that auto sales held steady, while Kansas City's contacts said sales softened because of inclement weather but expected them to rebound in the near future. Cleveland and Chicago noted increased availability of auto financing, and Cleveland reported an increase in leasing activity. Philadelphia, St. Louis, Kansas City, and Dallas indicated that vehicle inventories were at appropriate levels for the current sales rate, while inventories were mixed in Cleveland and lean in New York and San Francisco. All Districts conveyed optimistic outlooks among their auto contacts.
Tourism reports improved in the Richmond, Atlanta, and San Francisco Districts. Atlanta observed a strong increase in international visitors. Kansas City noted a slowdown in tourism amid severe weather but added that ski resorts benefited from the snowfall. New York reported a larger-than-usual seasonal slowdown in tourism with decreases in hotel occupancy rates and Broadway theater attendance, although the level of activity remained fairly high.
Real Estate and Construction
Commercial real estate activity showed signs of gaining traction according to a number of District reports. Boston, Chicago and Dallas reported that commercial real estate activity improved overall, while Richmond, Kansas City, and San Francisco noted increases in leasing activity. Kansas City described the market as stabilizing, while Philadelphia and Minneapolis reported that markets were flat overall, and New York described conditions as "slack" and St. Louis as "soft." Nonresidential construction remained weak according to most accounts. The Boston, Philadelphia, Atlanta, Chicago, St. Louis, and Dallas Districts reported weak levels of construction activity, while Chicago noted a slight pickup. Cleveland District contractors cited increasing inquiries, and unexpected growth in commercial construction was noted in the Minneapolis District. Overall, contacts anticipate a slow recovery in commercial real estate markets.
Philadelphia, Atlanta, Chicago, Kansas City, and San Francisco reported more rapid improvement in factory orders. Chicago cited steel, automotive, and heavy equipment manufacturing as sources for significant new orders growth, while Dallas noted that orders for high-tech goods had accelerated. Philadelphia and Atlanta suggested that increases in orders were more broad-based. Cleveland and Richmond observed that orders were increasing at the same pace as in their previous report. Demand from abroad, particularly Asia, was cited by several Districts as a driving force in new orders.
Transportation services firms in the Cleveland, Atlanta, and Kansas City Districts reported an increase in shipments. Cleveland contacts hinted at the possibility of hiring more drivers but also expressed concern over the tightening of the labor pool. Transportation firms in several Districts expressed concerns over rising fuel costs.
Banking and Financial Services
Most Districts reported that credit standards were unchanged to tighter. Kansas City reported standards were unchanged for all types of loans. New York noted some tightening of commercial loan standards but little change in the standards for residential mortgages or consumer loans. The Atlanta District reported increased standards for residential mortgage loans. St. Louis indicated standards had tightened somewhat for commercial mortgages, but were unchanged for C&I loans, and were unchanged to somewhat tighter for residential mortgages. San Francisco noted relatively restrictive standards for both consumer and commercial loans.
Community bankers in the Chicago and Dallas Districts cited increased competition for C&I lending from large banks. Atlanta noted improvements in credit conditions for all loan segments except those related to residential construction and real estate. Cleveland, Richmond, Chicago, Kansas City, and Dallas indicated steady to improving credit quality, and New York reported steady to lower delinquency rates. San Francisco reported that venture capital financing was improving with increased investor interest and IPO activity.
Agriculture and Natural Resources
Energy activity expanded or remained stable since the last report. Kansas City and Dallas noted strong drilling activity, while Cleveland and Atlanta reported a decline in permit issuance. In the Atlanta District, drilling activity remained below pre-Gulf of Mexico oil spill levels, although up slightly since October 2010. Coal production remained above year-ago levels in the St. Louis and Kansas City Districts and held steady according to Cleveland. Kansas City reported that oil and gas production increased, while Cleveland noted that production held steady. San Francisco reported that global demand supported oil extraction, while Minneapolis experienced stable oil exploration.
Prices and Labor Markets
Labor market conditions continued to strengthen modestly, with all Districts reporting some degree of improvement. The Boston, Cleveland, Minneapolis, and Dallas Districts cited noticeable improvements in the manufacturing sector, and the Boston and Cleveland Districts also observed increased labor demand in the healthcare and medical sectors. New York reported little or no hiring in the manufacturing sector, although their factory contacts planned on increasing hiring in the coming months. The Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and Dallas Districts received optimistic reports from staffing agencies. Dallas said that staffing firms experienced continued strong demand, particularly for high-skilled IT positions. The Cleveland District staffing contacts noted some growth in the number of new job openings, with vacancies concentrated in healthcare, manufacturing, and professional business services. Chicago reported that a large staffing firm reported solid growth in billable hours for both industrial and for office and clerical positions, as well as increases in both temporary-to-permanent job transitions and direct hiring of permanent employees. Boston, Richmond, and Chicago noted increases in the conversion of temporary to permanent hires and permanent job placements, while contacts in the Atlanta District reported a preference for hiring temporary staff. Employers in the Boston District reported difficulty in finding qualified candidates for high-skilled jobs. Despite the improvement in most labor markets, some Districts such as New York, St. Louis, Minneapolis and Dallas also noted layoffs in the region.