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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of New York and based on information collected before November 29, 2000. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.

District reports indicated some further evidence of slowing in economic growth, along with ongoing increases in cost pressures, though prices of finished goods and services remained stable. Boston, Cleveland, Richmond, Chicago, St. Louis, Kansas City, Dallas, and San Francisco noted some slowing in the pace of growth, while New York, Philadelphia, Atlanta and Minneapolis reported moderate, steady growth.

Although widespread weakening was reported in automobile sales, almost all Districts reported a brisk pickup in general merchandise sales in late November, and most retailers were cautiously optimistic about the remainder of the holiday season. One notable exception was Cleveland, where retail spending was described as soft. A number of Districts indicated that manufacturing activity leveled off or, in some cases, slowed. Similarly, construction activity slowed in a number of Districts, although residential and commercial real estate markets were generally characterized as strong. Among the service industries, reports indicated strength in the computer services and tourism sectors, but weakness in trucking. Banks reported mixed to declining loan demand and tighter commercial lending standards.

Labor shortages persisted in almost all areas, although there have been some signs of easing since the last report in Boston, Cleveland and Atlanta. Wage growth generally continued to be moderate, though there were scattered reports of an acceleration. More notably, there were widespread reports of increased costs for employee health benefits. Prices of raw materials were mixed, with energy and petroleum-based inputs rising, but lumber and metals costs falling. Prices of finished goods were generally flat, as were manufacturers' selling prices.

Consumer Spending
Retailers in most Districts indicated that general merchandise sales increased moderately, on balance, in November, with a lackluster performance for much of the month followed by unexpectedly strong rebound in sales over Thanksgiving weekend. Retailers expressed a general sense of optimism about the remainder of the holiday season. Strong late-month sales were noted in New York, Philadelphia, Richmond, Atlanta, Chicago, Minneapolis, Dallas, Kansas City and San Francisco; only Cleveland indicated that sales were sluggish throughout the month. The early strength in holiday-season sales was partly attributed to a combination of cold weather (New York, Chicago and Richmond) and stepped-up early promotions designed to draw traffic (Philadelphia, Atlanta, Chicago, Dallas and San Francisco). Among the categories of goods often mentioned in strong demand were electronics, toys, jewelry, shoes and winter outerwear.

In contrast, many Districts reported declines in automobile sales; Cleveland and Kansas City indicated that sales would have been still weaker if not for manufacturer incentives. Vehicle inventories were described as excessive in Philadelphia, Cleveland, St. Louis, Chicago and Dallas, but were not deemed to be problematic in Kansas City.

Manufacturing activity was said to be leveling off or slowing in most Districts. The sector was described as flat in Philadelphia, Richmond and Kansas City, and slowing in Boston, Cleveland, Atlanta, Chicago, St. Louis, and Dallas. However, continued expansion was reported in Minneapolis and San Francisco. Manufacturers in Philadelphia, Cleveland and Chicago complained that they are being squeezed by rising input costs (mainly labor and energy) and flat to declining selling prices.

Notably, the major motor vehicle-producing Districts--Cleveland, Atlanta, Chicago, and St. Louis--reported that automobile and truck manufacturers were scaling back production. Atlanta, Dallas and Chicago reported softening in the production of construction materials, while Cleveland and Chicago noted weakness in heavy equipment. Falling prices and increased import competition (stemming from the strong dollar) were cited as adversely affecting some industries--particularly steel--in Philadelphia, Cleveland, Chicago, and San Francisco. On a more positive note, export manufacturers in Kansas City indicated that they were doing well despite the strong dollar. Industries reporting continued strength included semiconductors (Boston, San Francisco) office equipment (Chicago) and information systems (Boston).

Real Estate and Construction
Both residential and commercial real estate were still characterized as strong, though there have been some signs of slowing in both sectors since the last report. Single-family home sales were reported to be flat in New York, Philadelphia, St. Louis and Kansas City, and softening in Richmond, Atlanta and Chicago. Construction of new single-family homes has softened--activity has been level in Cleveland and St. Louis, but has declined in New York, Atlanta, Chicago, Minneapolis, Kansas City and Dallas, and San Francisco. However, New York's decline was largely attributed to a shortage of available land, and San Francisco's decline was offset by increased remodeling of existing homes.

The multi-family market has softened, and construction has slowed in Atlanta, Kansas City, and Dallas. There were also signs of cooling in New York's extremely tight apartment market. The multi-family market continued to strengthen in Philadelphia and Minneapolis. Multi-family construction showed no signs of slowing in New York or Philadelphia.

Demand for commercial real estate remained strong in most areas, with particularly tight office markets reported in Boston, Philadelphia, Richmond and Kansas City. Still, construction has slowed in some Districts--specifically, Richmond, Atlanta, Chicago, and St. Louis. On the other hand commercial construction has held steady at a high level in Cleveland, Kansas City and San Francisco, and it has picked up in Minneapolis. San Francisco noted that construction schedules have been delayed, in some cases, by labor and material shortages.

Tourism and Services
Tourism was generally described as strong in those Districts reporting on it. Activity was seen as robust in Boston, Richmond, and Atlanta, and mixed in Minneapolis. Rising hotel rates were reported in Boston, Minneapolis and San Francisco.

Conditions in various other service industries were mixed. In Richmond, service firms, in general, indicated sluggish growth in recent weeks. Transportation services (mainly truckers) in Cleveland and Chicago indicate that they have been squeezed by rising fuel and labor costs, and slowing demand. However, computer service firms in Boston, New York and San Francisco continued to register strong growth overall, despite scattered reports of business failures and layoffs in the industry.

Financial Services
Banks generally reported weaker demand for real estate loans but mixed results for consumer and commercial loans. New York, Richmond, St. Louis, Kansas City and Dallas indicated weakening demand for real estate loans, while Atlanta indicated little change. Consumer loan demand softened in New York and Dallas, but expanded in Philadelphia and Atlanta. In the commercial segment, demand increased in New York, Atlanta and St. Louis, but decreased in Philadelphia and Cleveland and decelerated in Chicago.

Lenders tightened credit standards on commercial loans in most Districts--specifically, New York, Philadelphia, Richmond, Chicago, St. Louis, Dallas and San Francisco. Credit quality or delinquency rates held steady in New York, Chicago and Dallas, but deteriorated in Atlanta and San Francisco.

Banks in Dallas said they have been pinched by shrinking interest rate spreads. For financial service firms more generally, some signs of slowing business were reported in Richmond and especially New York, where Wall Street firms have been affected by a decline in initial public offerings.

Agriculture and Natural Resources
Conditions in the farm sector were mixed but generally positive, with farmers benefiting from government subsidies. Farmland values were reported to be rising moderately in the Chicago District, with strong demand coming from non-agricultural interests, and values are holding steady in Kansas City. Farmers in Minneapolis and San Francisco have reportedly been pressured by rising energy, labor and distribution costs. However, conditions were reported to be favorable for ranchers in Minneapolis and San Francisco.

Crop harvest conditions were mostly favorable. Wet weather has helped small grain crops in Richmond, St. Louis and Dallas; however, the wheat crop is not doing well in Minneapolis and Kansas City due to dry weather in those Districts. Farmers in the Richmond and St. Louis Districts reported storage problems arising from bottlenecks at grain elevators.

The energy extraction and production industries continued to benefit from elevated prices. High energy prices have sparked strong oil exploration and production in Minneapolis, Dallas, Kansas City and San Francisco, with the petroleum industry in those Districts running at or near full capacity. In contrast, metal mining activity in Minneapolis has been adversely affected by falling demand and rising costs.

Labor Markets, Wages, Prices
While labor markets continued to be tight across most of the nation, there were signs of softening in Boston, Cleveland, and Atlanta. Most Districts indicated steady wage growth, but scattered signs of acceleration were reported in New York, Richmond, Kansas City and San Francisco. In addition, increases in non-wage benefit costs (particularly health insurance) were noted in Boston, New York, Atlanta, Chicago, Kansas City and San Francisco.

The most noticeable easing in labor markets was in the manufacturing sector, with Philadelphia, Richmond, Chicago, St. Louis and Dallas reporting weakness in factory employment. Manufacturing wages continued to expand at a moderate rate in Boston, Cleveland, Richmond, Minneapolis and Dallas. Demand for construction workers has eased in Cleveland and Atlanta; however, in New York and San Francisco, construction workers--particularly plumbers, electricians, and other skilled tradespeople--remained in short supply.

Shortages of retail workers were reported in many Districts, although these shortages were generally described as seasonal and, in some cases, are no more severe than last year. The shortage of computer services and information technology workers has abated slightly in Boston and Chicago and noticeably in St. Louis; however, strong excess demand for these workers persists in New York, Atlanta, Kansas City and San Francisco. The shortage of truckers has eased slightly in Cleveland and Chicago, as rising fuel costs and slowing demand has hurt independent truckers and dampened hiring.

Prices for consumer goods were reported to be flat in almost all Districts, with only Richmond indicating some acceleration in retail prices. There were reports of rising hotel rates in Boston, Minneapolis and San Francisco. Also, low residential vacancy rates have boosted apartment rents in Philadelphia; on the other hand, rent concessions have started to be offered in Richmond, Atlanta and Dallas in response to an excess supply of multi-family units in some areas.

Manufacturers reported some increases in input costs--mainly energy and labor--but indicated that they were generally unable to raise selling prices. Materials prices were mixed. Widespread increases were reported in the cost of energy inputs, as well as rubber and plastics. However, prices paid for lumber and drywall declined.

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