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Prepared at the Federal Reserve Bank of Chicago and based on information collected before April 24, 2000. 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.
Reports from the twelve Federal Reserve Districts indicated that the economy continued to expand during March and the first three weeks of April. The majority of Districts reported moderate to strong economic growth, with only Richmond and Chicago noting some signs that overall growth had slowed slightly. Consumer spending was strong and retail sales were in line with most merchants' expectations. Commercial construction activity generally remained robust, while several Districts noted softening demand on the residential side. Factories were running near capacity in some areas, as overall manufacturing activity was strong. Dry soil conditions were reported in many areas, but spring planting proceeded at a rapid pace. Oil drilling activity was up from a year ago.
There were more frequent reports of intensifying wage pressures as shortages of workers persisted in all Districts. Increasing input prices were noted in nearly every region. Many Districts cited wider use of fuel surcharges by shipping firms and other transportation companies. Manufacturers in several areas also reported higher prices for petroleum-related inputs, such as rubber and plastics, as well as for some nonpetroleum-related inputs. However, there were only a few reports that increases in input costs were resulting in higher prices at the retail level.
District reports generally indicated that recent volatility in equity markets had not had an impact on activity as of the time of this report, although it had altered some contacts' expectations.
Retail sales generally were strong and in line with merchants' expectations. Contacts pointed out that year-over-year sales comparisons were affected by the fact Easter was later this year. Nearly all Districts reported strong sales of home-related items such as appliances, furniture, and lawn and garden equipment. The same was true for light vehicles (especially sport utility and luxury models), although pockets of softness were noted by Chicago and St. Louis. Nearly half the Districts reported that apparel sales were slow, especially men's, with unseasonable weather cited by many as a contributing factor. Inventories were in line with sales expectations for the most part. The tourism and travel industry was strong in the Richmond, Atlanta, and San Francisco Districts, while Minneapolis suggested that mild weather hurt their industry.
Prices at the retail level remained relatively stable in most areas, as competition and increased productivity reportedly helped keep prices in check. Philadelphia, Minneapolis, and Kansas City, however, noted more frequent reports of price increases in recent months.
Real Estate and Construction
Overall construction activity remained strong, although softening residential demand was reported in many Districts. Much of this easing took place in the interior of the country, with Cleveland, Chicago, St. Louis, and Kansas City noting that residential building had slowed. In contrast, the Richmond, Minneapolis, and Dallas Districts experienced strong growth in recent months, and New York reported that activity was "frenzied" in some areas. Philadelphia noted that the lack of land approved for development appeared to be limiting the pace of homebuilding. Existing home sales also appeared to have slowed somewhat, with a third of the regions noting that the stock of houses available for sale was quite low. Home prices continued to rise, especially in the coastal regions, but also in the Minneapolis and Kansas City Districts.
Reports suggested that commercial construction activity remained robust in most areas, as only Dallas reported an overall slowing in its District. Minneapolis and San Francisco noted strong growth while activity was mixed in the Cleveland and Atlanta Districts. Office rents were reported to be rising in the New York and San Francisco Districts.
Manufacturing activity generally was strong, but reports were mixed by both geography and industry. Richmond was the only District to report a moderation in overall activity, while Boston, Cleveland, Kansas City, and Minneapolis noted solid gains. Activity was mixed in New York, Atlanta, Chicago, and Dallas, but generally remained strong. District reports indicated that light vehicles and related equipment, machine-cutting tools, steel, and high-tech hardware industries exhibited significant strength, while the agricultural equipment, heavy truck, and aerospace equipment industries were relatively soft. District reports on primary metals, fabricated metals, and textiles were mixed. Increasing foreign demand for manufactured goods was cited by Boston, Kansas City, Dallas, and San Francisco. District reports suggested that input prices were generally stable, with the oft-noted exception of increases in petroleum-related input prices. Philadelphia, however, indicated that input prices had increased for materials used in lumber, paper, chemical, and industrial equipment production. Output prices for steel continued to rise, as did prices for some construction-related materials. Wallboard prices, however, declined in the first quarter as new capacity came on stream, but prices remained solidly above year-ago levels. Cleveland and Chicago noted that factories were running near capacity while St. Louis suggested that the shortage of workers was a constraining force on their manufacturing activity.
Banking and Finance
District reports indicated that business loan demand remained strong in March and April while, on the consumer side, residential mortgage lending was relatively soft. Demand for commercial and industrial loans was reported to be high in 11 Districts, while Dallas noted a slight softening. Interest rate increases were said to be delaying some commercial construction projects in Atlanta and Chicago. Contacts in virtually all Districts reported that business loan quality remained good, and some noted that banks were still tightening lending standards. Residential mortgage lending activity was generally flat to down in most areas as mortgage interest rates trended higher. New mortgage originations were down and refinancing activity remained very soft. Some Districts reported that high consumer confidence kept the demand for other types of loans (credit card, home equity, etc.) strong. Credit quality of consumer loans was also reported to be good, and improving slightly. Banks in most areas continued to report difficulty attracting sufficient deposits to fund loans.
Difficulty in finding and retaining qualified employees remained a common refrain in District reports as worker shortages persisted in every District, and practically every industry and occupation. Many Districts noted that the lack of available workers continued to hamper overall economic growth; and reports of employers providing retention and referral bonuses, assistance in finding child care, and health benefits were more widespread. Many Districts reported particularly severe shortages of workers in retail trade. In the San Francisco District, a retailer was reported to have received only 2 applications for over 20 job openings at a new store, and Atlanta reported that some retail chains had given store managers the leeway to set local wages competitively. Employment costs remained under pressure and appeared to intensify in the last two months. New York, Cleveland, and Chicago cited significant increases in health care costs as a contributing factor.
Agriculture and Natural Resources
Farmers and ranchers in many areas were concerned about low soil moisture levels. Reports from nearly half the Districts indicated there were areas of dryness that had adversely affected pasture conditions and may hinder the development of recently planted field crops and vegetables. Spring planting in most Districts was generally proceeding rapidly and running either on or ahead of the average pace. Chicago and St. Louis reported that spring planting intentions were quite similar to a year ago. Kansas City and Minneapolis reported that the winter wheat crop was in good condition, but Kansas City noted that additional rainfall was needed to ensure crop development.
The commodity price situation was mixed. Several Districts reported that farmers benefited from recent gains in hog and beef cattle prices. But low prices remained a concern for corn, soybean, and wheat producers despite some recent increases. In addition, San Francisco indicated that rising fuel prices had pushed costs higher and squeezed operating margins. Reports from Dallas, Kansas City, and Minneapolis indicated that oil-drilling activity was stronger than a year ago. Dallas indicated that the domestic rig count might be nearing an upper limit due to availability constraints on personnel and equipment. Minneapolis reported that the iron ore and palladium mining industries were at full production, but that low prices and environmental issues plagued gold mining.