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Prepared at the Federal Reserve Bank of Minneapolis and based on information collected before October 25, 1999. This document summarizes comments received from businesses and other contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials.
Most districts continue to report strong economic growth but some slowing is noted. Manufacturing activity continues to advance in almost all districts and for most industries. Although four districts report some slowing in consumer outlays, spending generally remains strong and most retailers are expecting increases in holiday sales from last year. Real estate and construction are still robust in most districts, though there are signs of some moderation in activity. The mining and energy industries are showing signs of recharging. Overall loan demand remains brisk, although a softening is noted by some districts in consumer loan demand. Labor markets remain tight across the country, with numerous districts reporting continued difficulty in finding and retaining qualified workers. Many districts report a pickup in wage increases, but overall prices remain stable with some notable exceptions: Increases in prices were noted for some manufacturing inputs, health care, memory chips and construction materials. By contrast, low prices continue to weigh heavily on some important segments of the agricultural sector.
Many districts report continued steady to strong retail spending, while the Chicago, Dallas, Kansas City and New York districts mention weakening sales. The Minneapolis and San Francisco districts report sizable increases in sales; in the Philadelphia district, several stores experienced double-digit increases over last year. Sales growth in the Boston district is generally exceeding retailers' expectations. But retailers in the Kansas City district report a decline in sales, following flat activity in the three previous surveys. Most districts note that retailers expect strong consumer demand as the holiday season approaches. Auto dealers report solid sales in the Dallas, Kansas City and Philadelphia districts, with weakening demand indicated in the Chicago district. In the Cleveland district, auto sales slowed in October after a record summer. Some dealers continue to have short inventories of some popular models. Fall tourism is steady compared to a year earlier in the Minneapolis district. Hurricane Floyd depressed tourism at coastal destinations in the Richmond district, but inland mountain resorts report gains.
Nearly all districts report that manufacturing activity is growing. The Boston district reports most suppliers to the semiconductor, telecommunications, biotech and construction industries are experiencing double-digit increases in business. Several manufacturers of industrial products and chemicals in the Philadelphia district note increases in orders from customers in Asia. The Richmond district reports that shipments and capacity utilization levels are increasing; production was particularly strong in printing and publishing. Shipyards in Louisiana are operating at full capacity, according to the Atlanta district. The Chicago district reports that automobile production was steady at very high levels in recent months. Strong growth in sales of plastics and building materials is reported by the St. Louis district. The Dallas district reports a slight increase in manufacturing activity. The San Francisco district reports expansions in petrochemical production, paper processing, steel manufacturing and high-technology equipment manufacturing.
Kansas City is the only district reporting a slowing in overall manufacturing activity. In addition, the Boston district notes that production of industrial machinery and machine tools remains below year-earlier levels.
Labor markets remain tight across most of the country. The Cleveland, Dallas, New York and Richmond districts report strong demand for temporary workers. In New York, "effectively, there are no more temps." The New York district attributes a slowing in payroll employment to labor shortages, and the Chicago district says its labor markets remain tighter than the nation as a whole. In the Atlanta district, excessive overtime to offset labor shortages is causing morale and productivity problems. In the Dallas district, retailers' entry-level turnover is 200 percent to 300 percent a year. Throughout the San Francisco district, finding and keeping qualified entry-level and skilled workers is a challenge.
Some districts, however, detect an easing in selected labor markets. The Dallas and New York districts indicate some letup in requests for computer specialists and IT-related jobs as Y2K-preparation work is completed. The Philadelphia district states hospitals and health services firms have laid off workers recently, and the Chicago and Kansas City districts disclose some softening in requests for manufacturing workers.
Wages and Prices
In most districts, the persistent tightness in labor markets continues to put upward pressure on wage increases. Boston reports that labor costs may be accelerating somewhat, with manufacturers offering attractive recruitment packages and slightly higher wage increases while retailers engage in more raiding. The Chicago, Minneapolis, Richmond and St. Louis districts report accelerating wages as well.
There are few signs of a general pickup in prices of final goods and services. Several districts report few price changes, and in the Boston, Kansas City and New York districts retail prices are either steady or declining, despite increases in the cost of manufacturing inputs. Moreover, several districts report selected price increases: health care costs (Atlanta, Chicago and Minneapolis), memory chips (Dallas), paper (Minneapolis) and construction materials (Atlanta and Minneapolis). In contrast, the Dallas district reports the prices of lumber and wood products and cement have declined recently.
Real Estate and Construction
Real estate and construction remain robust in most districts, though indications of some slowing have surfaced recently. Residential real estate activity is at high levels in the Richmond and San Francisco districts, although the pace of growth is slowing. In the Boston, Chicago and Kansas City districts recent interest rate increases have curbed home sales. Existing home sales rose just 1 percent in September in New York State, but prices increased 6 percent from a year earlier. In the Kansas City district building activity improved following several months of decline, but was flat compared with a year ago. Housing units authorized are above year-earlier levels in the Minneapolis and St. Louis districts.
The commercial real estate markets are considered tight in several districts and commercial construction is increasing. The Chicago, New York and Richmond districts report low office vacancy rates. The pace of construction is slightly ahead of a year ago in the Atlanta district, but the level of activity was uneven across the district.
Most districts report that residential and nonresidential construction is constrained by labor shortages and higher prices on some construction supplies. The St. Louis district notes that shortages of workers and certain materials will continue to delay some projects.
Banking and Finance
Most districts report increases in overall loan demand, although four districts indicate some easing in the demand for consumer loans. The Cleveland, New York, Richmond and Chicago districts report a softening in consumer loan demand. Only the New York district experienced weakness in overall loan demand. Commercial lending activity increased in the Philadelphia, Richmond, Chicago and Kansas City districts. The Richmond district reports that commercial bank lending is driven by continued business expansion and, in some cases, the anticipation of higher interest rates. Consumer lending has strengthened in the Philadelphia, Atlanta, St. Louis and Kansas City districts. Credit quality is good in the Atlanta district, and bankruptcies continue to gradually decline. The San Francisco district reports continued solid credit quality, while in the St. Louis district many bankers are becoming increasingly concerned about delinquency rates and have upped their loan loss reserves accordingly. The New York district reports tighter credit standards for all categories of loans.
Agriculture and Natural Resources
Most of the country is having a good harvest. The Chicago, Cleveland, Kansas City and Minneapolis districts all report good harvest conditions for their crops. Record soybean and sugar beet crops are projected for some states. Drought has reduced yields in the Dallas, Richmond and St. Louis districts, but hurricanes brought much-needed rain to most areas of the East Coast and too much rain in some areas. The San Francisco district reports mixed agricultural conditions, with good conditions for fruits and rice, and poor conditions for vegetable and grain producers. Farm income, however, remains depressed as dismal agricultural prices are offsetting the bumper crop.
Conditions for dairy producers remain strong, report the Cleveland and San Francisco districts. Meanwhile, cattle and swine herds have benefited from low feed prices. The Kansas City and San Francisco districts report favorable conditions for cattle ranchers; however, the Chicago district reports a sharp decline in the size of the swine breeding herd. The Dallas district reports most pastures had limited forage for livestock, and supplemental feeding and herd reduction continued in most areas.
Oil exploration is on the rise, with oil rig counts in the Dallas, Kansas City and Minneapolis districts higher than early summer levels. In addition, the Minneapolis district reports several iron ore mines restarting taconite production.