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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of Boston and based on information collected before June 6, 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 Federal Reserve Districts indicate that solid economic growth continued in April and May, but that signs of some slowing from the rapid pace earlier in the year are also present. In Minneapolis, "economic activity remains hot," and in Chicago and Richmond, growth is said to be strong. Most of the other District reports characterize growth as moderate or steady. All but Minneapolis said scattered signs of cooling are in evidence or the pace of growth is slowing. Indications of worsening price inflation, while not widespread, are reported by several Districts.

Labor markets are tight across all 12 Districts, but the tightness does not appear to have intensified since the last report. Contacts across the country report worker shortages and difficulties in recruiting and hiring; half the Districts indicate that labor shortages are constraining output growth. The St. Louis, Richmond, Cleveland, New York, and Boston Districts report that shortages would be even more severe in the absence of inflows of immigrants or students. Base wages of permanent employees are not said to be accelerating in most Districts, but seasonal help and temporary workers are being recruited only with sizable raises. Similarly, some occupations experiencing severe shortages--skilled building trades in New York, for example, and Internet and other technical workers in the Boston and Atlanta Districts, entry-level workers in Richmond, and truck drivers in Chicago--have seen larger pay increases.

Consumer Spending
Retail sales are higher in all Districts than a year ago. However, half of the Districts report a recent slowdown in the rate of growth. All four of the Districts mentioning the tourist sector (Boston, Richmond, Atlanta, Minneapolis) said that tourism spending continues to be strong. A majority of Districts said that autos and durable goods exhibited weaker sales growth and a corresponding increase in inventories for some of these big ticket items. Despite the recent slowdown, retailers in the St. Louis, Richmond, and Boston Districts remain optimistic concerning the strength of consumer demand, while retailers in the Dallas District are revising downward their earlier projections of spending growth.

Merchants in all Districts report very tight labor markets for retail workers, with corresponding pressures to increase wages in order to attract employees. Districts mentioning wage increases in the retail sector said they were in the 3 to 7 percent range, with double-digit wage growth in highly skilled occupations and among seasonal workers. Tourist-related businesses are said to be having great difficulty filling seasonal positions.

Retailers in the Boston, New York, Atlanta, Chicago, Kansas City, and San Francisco Districts say that wage inflation is not carrying over to prices. Of those, all but Chicago indicate that prices for consumer goods are mostly stable. Retailers in Chicago report that prices are rising modestly. However, retail contacts in Cleveland said that increased supply costs are being passed along, raising consumer goods prices faster than previously. By contrast, Richmond reports that price increases have eased in the retail sector.

Most Districts report that overall manufacturing activity is rising. Chicago, Kansas City, and San Francisco report a slight weakening but describe conditions as "strong" or "solid." St. Louis indicates that business is stable at a high level.

Strong and rising demands for steel, fabricated metals, petroleum products, semiconductors, and high-tech equipment are mentioned frequently in District reports. Shortages of labor, materials, and capital are said to be constraining actual or expected output for manufacturers of these or other products in the Boston, Philadelphia, St. Louis, Minneapolis, Kansas City, and Dallas Districts. Where mentioned, exports are said to be rising across a variety of products, mostly durable goods.

Reports on the interest-sensitive automotive and construction-related sectors are mixed. Chicago and Cleveland indicate declining demand for heavy trucks. Chicago notes a slowdown in light vehicle demand (from an exceptionally high level last year); however, Atlanta reports a ramp-up in production among auto parts suppliers. Boston, Philadelphia, and Richmond cite strong demand for building components and furnishings. Dallas indicates continuing strong demand for brick and glass but declines for lumber and wood products. San Francisco indicates that lumber orders are sluggish. Cleveland and Chicago mention that public sector construction is providing a boost for some manufactured products, although Chicago also reports that orders for construction equipment are down.

Most Districts mention some evidence of increasing inflationary pressures. Prices paid for petroleum-based products, natural gas, metals, paper, and some construction materials are said to be rising. However, reports generally indicate that manufacturers are raising their selling prices less than the increase in input costs. Only Richmond explicitly states that the prices of manufactured goods accelerated in the most recent survey period, describing the increase as slight. By contrast, Chicago characterizes pricing in the manufacturing sector as soft.

Nonfinancial Services
Districts reporting on business services generally describe demand as strong within the sector although Cleveland reports a softening in the need for temporary workers. Also, demand for legal services from dot-com companies has slowed somewhat in Dallas because of weakness in financial markets and fewer IPOs. Labor markets remain tight throughout the country. For example, software and information technology service firms in Boston report high turnover rates and difficulty competing with compensation packages offered by dot-com companies in the area. Contract employment firms in both Richmond and Boston relate that clients are increasingly using their services to fill permanent positions, because of the difficulty they are having finding workers on their own.

Banking and Finance
Most Districts report either a reduction or a slowing in the growth of loan demand, especially for mortgages. Richmond and Atlanta report softening demand for commercial loans. New York, Richmond, Atlanta, Chicago, St. Louis, and Dallas note sluggish or decreased mortgage demand. New York, Richmond, and Atlanta report decreased or soft mortgage refinancing. New York, Cleveland, and St. Louis experienced slowing of demand for consumer loans. San Francisco reports "slightly weaker loan demand in some areas," and Philadelphia notes a slowing in the rate at which loan volume was increasing. Contrary to the general tone, Chicago, Kansas City, and Dallas report strong or increasing overall loan demand; Cleveland reports strong commercial lending activity; and Atlanta reports strong consumer and home-equity loan demand.

Three Districts report that deposits are down, although New York notes an increase. There appears to be little change in credit standards since the last survey.

Construction and Real Estate
Compared to a year ago, April and May home sales were lower in more than half of the Districts. While the Richmond and St. Louis Districts report moderate slowdowns, the Kansas City District experienced a significant decline. In contrast, upstate New York had much higher sales than a year ago, and home sales in New York City declined only because of lack of inventory. The pace of residential construction was also slower in many areas. The New York District reports fewer single-family home permits in April compared to the first quarter, and sales of new homes in the Cleveland District were 5 to 10 percent lower than a year ago. By contrast, the Philadelphia and Minneapolis Districts report increased construction activity. House price changes were mixed.

Commercial real estate markets are strong, and commercial construction has escalated in many parts of the country. The Philadelphia and Cleveland Districts report new industrial construction, while the Atlanta District reports speculative office construction. Construction is also expanding in the Chicago, Minneapolis, and Kansas City Districts, but it has slowed in the Dallas District. Office vacancy rates are very low in some metropolitan areas, mainly Boston, New York City (where record low vacancy rates were reported in Manhattan), and the San Francisco Bay area. Both office and industrial space is scarce in the Richmond and Atlanta Districts. Office rental rates are increasing in Boston, Manhattan (where rents have risen at an annual rate of 35 percent so far this year), Philadelphia, and Washington, DC. Contacts in most Districts expect activity in commercial markets to continue at a high level, but predict possible further slowdowns in residential markets due to higher interest rates.

Agriculture and Natural Resources
May rains reportedly improved crop prospects in the Cleveland, Richmond, and Chicago Districts. By contrast, drought-like conditions continued in most of the St. Louis, Kansas City, and Dallas Districts, where the dry weather damaged winter wheat and created poor forage. Pastures are also dry in Arizona and Oregon. In a few areas, scarce forage has spurred ranchers to start culling their herds. Nevertheless, the corn, soybean, and other major crops are generally described as on or ahead of schedule, and in Cleveland, St. Louis, and Minneapolis, they are in good-to-excellent condition. Surveys in several Districts indicate that farmers' financial conditions have improved, with gains in farm values and incomes and debt repayments. Contacts in Kansas City and San Francisco noted that crop prices remain low, while those in Minneapolis and San Francisco mentioned rising wages or turnover for farm labor.

Activity in the energy sector has improved. Atlanta, Minneapolis, Kansas City, and Dallas all cite sharply increased rig counts in response to low inventories, strong demand, and higher energy prices. With natural gas prices up over 50 percent year-on-year and forecast to rise, Dallas reports that gas is leading the sector's recovery and that drilling in the Gulf of Mexico is at late 1997 peaks. In Atlanta and Dallas, contacts note that the energy sector is having trouble hiring. The iron ore and platinum industries in the Minneapolis District are operating near capacity.

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Last update: June 14, 2000