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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of Kansas City and based on information collected before January 10, 2001. 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.

Reports from Federal Reserve Districts indicate that economic growth slowed in December, easing labor shortages somewhat and limiting price pressures for finished goods and services. Most districts reported a further deceleration in growth from the previous survey. Philadelphia reported an actual decline in activity, while Cleveland said that economic growth remained at the same slow rate as in the previous report. New York and San Francisco indicated that growth remained solid but showed some signs of softening.

Despite heavy discounting, nearly all districts reported lackluster retail sales growth during the holiday season. Automobile sales slowed substantially and most districts reported a sizable buildup of dealer stocks. All districts reported weaker manufacturing activity in December. Residential construction cooled in most districts but remained strong in New York and San Francisco. Commercial real estate activity also showed some signs of slowing. The tourism industry reported a strong start to the winter season, but other service activity weakened, particularly for trucking and other transport. Activity in the energy sector expanded as fast as drillers could find workers and rigs. Banks did not report any deterioration in credit quality but kept a watchful eye over their loans.

Labor markets eased somewhat but remained tight. Layoffs in a wide variety of industries were announced in most districts. However, business contacts expected laid-off workers to be quickly reabsorbed due to strong pent-up demand for labor at other firms. In most districts, wage pressures were similar to or slightly less intense than those in the previous survey. Prices for most manufactured goods were flat to down despite higher costs for energy and other inputs. Consumer product prices were constrained by heavy holiday discounting.

Consumer Spending
Holiday retail sales were disappointing in nearly all districts, despite early and extensive discounting. Most districts reported that sales were up only slightly from the holiday season a year ago, when strong gains were reported. An exception was the New York district, where sales increases were on or close to plan. The overall weak sales growth led several national and regional retailers to close some or all of their stores. Many districts cited diminished consumer confidence as the biggest reason for the slower growth in activity this December. Retailers in the Richmond, Chicago, St. Louis, and Dallas districts reported that brutally cold weather further dampened sales. Winter weather items sold very well in December, as did apparel in most districts. But sales of home furnishings, fine jewelry, computers, and most other items lagged. Kansas City and San Francisco reported significant growth in online retailing during the 2000 holiday season, although the growth was below expectations in the San Francisco district. Inventory levels were reported to be satisfactory to slightly excessive in most districts. Managers seemed confident, however, that any surpluses would be trimmed during January clearance sales. Looking ahead, most store managers seemed cautiously optimistic about retail sales in the first quarter of 2001.

Automobile sales in all districts reporting on such activity were characterized as either weak or slowing. Sales of domestic cars and light trucks were reported to be especially weak in the Philadelphia and Chicago districts. St. Louis noted that used car dealerships experienced the largest decline in sales. Dealers in the Kansas City district had difficulties moving all makes and models of motor vehicles. Inventories of unsold cars throughout the country were high, and in most districts expectations for auto sales in coming months remained subdued.

Manufacturing activity weakened in all districts in December. Steel producers were reported to be in difficulty in many districts, with Cleveland and Chicago reporting a number of bankruptcy filings among steel firms. There were also announcements in several districts of temporary auto assembly plant shutdowns in the first quarter. Slower construction activity in recent months has precipitated a dropoff in production of construction-related materials and equipment in the Boston, Dallas, and San Francisco districts. On a positive note, activity at many of the nation's refineries remained solid. Production of computer-related equipment remained strong in the Boston district, but Dallas reported a sharp falloff in computer production, due to weaker consumer demand for PCs and to reductions of technology-related investment by businesses.

High input costs, the strong dollar, and weaker domestic demand were cited the most often as reasons for the slowdown in factory activity. Boston, Richmond, and St. Louis reported that higher input costs were squeezing profits for some firms. Half the districts also mentioned widespread concern among manufacturers about higher energy costs. Some fertilizer, chemical, and smelting plants in the St. Louis, Minneapolis, Kansas City and San Francisco districts have even shut down in order to resell their electricity or natural gas supplies on the open market. Philadelphia, Cleveland, Richmond, Atlanta, and Kansas City reported that heavy import competition, due largely to the strength of the dollar, was hampering manufacturing sales. Atlanta also reported that uncertainty about the U.S. stock market was adversely affecting firms' capital expenditure plans.

Real Estate and Construction
Residential real estate activity cooled in most districts. Single-family residential construction remained strong in the New York and San Francisco districts, but it declined in the St. Louis, Kansas City, and Dallas districts and showed signs of slowing elsewhere. Homebuilders in the Cleveland district reported that they have far fewer projects scheduled for coming months than at the same time last year. In contrast, builders in the New York district reported a persistent backlog of projects. Home sales were mixed across housing markets, with New York again reporting the most robust activity. Boston and Richmond reported that reduced consumer confidence was adversely affecting sales, with potential homebuyers showing greater willingness to delay home purchases. Unusually cold weather was also reported to have held down activity in some districts.

There were also signs of slowing in commercial real estate activity in some districts. Commercial construction slowed in the Dallas, Richmond, and Atlanta districts, and was described as mixed in the St. Louis and Cleveland districts. Commercial building remained solid in the Kansas City district. New York and Richmond reported that contraction by dot-com enterprises has helped free up some office space, although the office market in the New York district remains very tight. Shortages of office space were also reported in parts of the Richmond, St. Louis, and San Francisco districts.

Tourism and Services
Tourism was better than expected in those districts reporting activity. Unusually cold weather and a good snow base boosted visits to ski resorts in the Richmond and Minneapolis districts. Atlanta also reported that holiday travel to Florida was very strong.

Activity in other service industries was generally down. Demand for trucking services fell considerably in the New York and Cleveland districts, and was down slightly in the Dallas district. Meanwhile, trucking firms' fuel, insurance, and labor costs continued to rise, resulting in an increase in bankruptcies and truck repossessions in the New York district. St. Louis reported a slowdown in barge traffic on the Mississippi River due to low water levels. Richmond and Dallas reported that revenues fell at most business service firms. In contrast, revenues were up in the Boston district's insurance industry.

Financial Services
Bank loan growth slowed somewhat in most districts in December. Bankers in the Cleveland district said decisions by some manufacturing firms to delay investment projects had reduced demand for business loans. Atlanta and Chicago also reported some slowing in business loan demand. New York, Kansas City, and San Francisco reported somewhat weaker demand for both consumer and business loans, while Dallas reported that demand slowed for all categories except loans to energy firms. Demand for home mortgages was mixed, but lenders in several districts said they expect refinancing activity to pick up if low mortgage rates persist.

There were no new reports of decreases in credit quality, but banks generally continued to tighten credit standards and said they were keeping a watchful eye on the financial condition of their borrowers. Banks in the New York, Philadelphia, Atlanta, Chicago, and Dallas districts reported they were continuing to tighten their credit standards. Banks in many districts also said they were monitoring credit quality carefully to detect any deterioration. Bankers in the Chicago district reported they were keeping an especially close eye on loans to retail and manufacturing sectors, while bankers in the Richmond district said they were paying special attention to loans to cyclical industries.

Agriculture and Natural Resources
The energy sector continues to expand. Despite recent easing in oil prices, contacts in the Dallas, Kansas City, and Minneapolis districts reported that oil and natural gas prices remain sufficiently high to promote continued expansion of exploration and production. However, Dallas and Kansas City reported that the pace of industry expansion is constrained by worker and equipment shortages. Given these shortages, the recent dramatic rise in natural gas prices is not expected to produce a further acceleration in drilling activity. Other extraction industries are not doing as well, as metal mining and processing activity in the Minneapolis district continued to decline in the face of falling commodity prices and high electricity costs.

In the farm economy, the onset of winter weather across the country has had mixed effects. Minneapolis reported that moisture from heavy snowfalls has benefited the winter wheat crop and is expected to reduce the likelihood of drought conditions in the coming growing season. However, severe winter weather also contributed to a worsening in pasture conditions for livestock and an increased use of alternative forages in the Richmond, Minneapolis, Kansas City, and Dallas districts. The alternative supplies seem to be generally available except for some reports of hay shortages in the Dallas district.

Labor Markets, Wages, and Prices
Labor markets eased somewhat but remained tight in most districts. Layoffs in a wide variety of industries were announced in most districts. Due to strong pent-up demand for labor at other firms, however, contacts in most districts expected laid-off workers to be quickly reabsorbed. Contacts in the Boston, New York, Atlanta, and Kansas City districts also expressed hope that recent dot-com layoffs would alleviate the severe shortage of information technology workers. Businesses that were still having difficulty finding qualified workers included retailers in the New York and Cleveland districts, construction firms in the New York and San Francisco districts, and health care firms in the Atlanta district. In contrast, service firms in the Chicago district said they were having more success in finding qualified workers in the last few weeks of the year, and firms in the St. Louis district reported that the slowdown in demand in the district was making it easier to fill vacancies.

Wage pressures in most districts either held steady or decreased slightly in response to the easing in labor markets. Chicago, Dallas, Kansas City, and San Francisco all reported some moderation in overall wage pressures. New York described wage pressures as strong but steady, while Minneapolis reported that wages continued to increase at a moderate pace. Despite the overall slowdown in economic growth, a number of districts reported strong wage pressures for certain types of workers, including information technology workers in the Boston district, retail workers in the Richmond district, construction workers in the San Francisco district, and union workers in the Cleveland district.

Price pressures for consumer goods were subdued, while prices for most manufactured goods were flat to down despite higher input costs. Extensive discounting by retailers during the holiday shopping season helped constrain consumer prices in most districts. Retail prices increased at a slower rate in the Richmond district, held steady in the Boston district, and declined somewhat in the Kansas City and Dallas districts. Manufacturers in many districts reported that their input costs rose in December, especially for energy, but that they were unable to pass these cost increases on to customers due to intense foreign and domestic competition and slowing demand. The most notable reports of downward pressure on selling prices were for steel firms in the Cleveland and Chicago districts and for a wide variety of manufacturing firms in the Dallas district, including producers of metals, cement and concrete, paper, and lumber. In the service-producing sector, telecommunications firms in the Dallas district reported their prices were falling rapidly, but insurance firms in the Boston district said that reduced price competition had enabled them to raise premiums to more profitable levels.

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Last update: January 17, 2001