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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of Philadelphia based on information collected before February 26, 2001. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a representation of the views of Federal Reserve officials.

A majority of Federal Reserve Districts reported sluggish to modest economic growth in February, while others generally reported mixed conditions. Growth was noted by Boston, New York, Richmond, Atlanta, Kansas City, Dallas, and San Francisco. Economic conditions were mixed in Philadelphia, Cleveland, Chicago, and Minneapolis, and St. Louis reported noticeably slower economic activity.

Consumer spending rose slightly in most Districts in January and February as retailers offered deep discounts on winter merchandise. Auto sales were generally steady, but below last year's rate. Manufacturing activity continued to decline in most of the nation, although in the Boston and Richmond Districts manufacturers reported improvement. Commercial real estate activity eased in most of the Districts reporting on that sector, but vacancy rates remain mostly steady and rents have been level or rising. Home building activity rose somewhat in New York, Richmond, Atlanta, Chicago, and Minneapolis, but declined in St. Louis, mainly because of bad weather. Agricultural conditions in the Richmond and Dallas Districts were adversely affected by dry weather. Low grain prices and high costs for farm inputs have negatively affected farm finances in the major agricultural regions of the country. Oil and gas drilling have increased in response to higher prices, but mining activity has been cut back in the wake of slackening demand for mine output. Bank lending has been sluggish except for an increase in home mortgage refinancing. Banks in some regions across the country have tightened credit standards.

Although labor markets remain tight, over half of the Federal Reserve Districts--Boston, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and San Francisco--noted some signs of easing. Demand for manufacturing workers has been declining, and recently, demand for construction workers and information technology workers has softened. Demand remains strong for clerical workers in a variety of industries and for health care workers. Employers reported some easing in wage pressures, but they have seen increases in health benefit costs. Higher prices for energy, especially natural gas, were noted in nearly all Districts, but price pressures for many other products do not appear to have increased.

Consumer Spending
Retail sales rose modestly in a majority of Federal Reserve Districts in January and February compared with the same months last year. Increased sales of general merchandise were noted by New York, Philadelphia, Atlanta, Chicago, Minneapolis, Dallas, and San Francisco. Decreased sales were reported by Boston, Cleveland, Richmond, and Kansas City. Many District Banks noted that the sales gains were driven by extensive discounting in January to clear out winter merchandise. Sales varied among major lines of merchandise. Women's apparel sold well in New York, Cleveland, and Atlanta, but these same Districts and Kansas City indicated softness in sales of men's apparel. Cleveland reported increased sales of electronic items, and New York reported increased sales of home furnishings. In contrast, sales of home furnishings and housewares declined in Cleveland and Kansas City. Sales decreased for appliances in Chicago and jewelry in Atlanta.

Auto sales generally declined in the first two months of this year compared with last year, although several Districts reported that sales have improved from December. Auto dealers' inventories were described as high throughout the nation, and manufacturers were extending incentives to boost sales.

Tourism activity has held up in most of the Districts that reported on this sector. Richmond indicated that business was strong at ski and shore resorts. Atlanta reported increased occupancy rates at hotels in Florida as did San Francisco for hotels in California and Hawaii. Minneapolis reported solid winter tourism activity. However, Boston reported unexpectedly weak growth in tourism in New England.

Manufacturing activity decreased in the first two months of the year in all Districts except Boston and Richmond, where it rose modestly, and New York and San Francisco, where conditions varied among manufacturers. Falling output among makers of high-tech equipment and motor vehicles and parts was reported by Atlanta, Chicago, St. Louis, and Dallas. Declining output for electronic products and telecommunications equipment was reported by Minneapolis and Dallas. Production of industrial equipment and building materials was falling, according to reports from Philadelphia, Chicago, and Minneapolis. Some improvement was noted among manufacturers of pharmaceuticals and biotechnology in the Boston and San Francisco Districts. Philadelphia and San Francisco noted gains among manufacturers of food products. Atlanta reported that shipyards in the District had received increased orders for both military and civilian vessels.

Several Reserve Banks reported high inventories among the manufacturers in their Districts. Cleveland and Chicago noted excess inventories of steel. Dallas and San Francisco reported high inventories of telecommunications equipment. Kansas City indicated that inventories were above plan for most manufacturers in the District. Manufacturing firms were reported to be trimming capital spending in Boston, Philadelphia, Kansas City, and San Francisco.

Real Estate and Construction
Commercial construction activity eased in most of the Districts that reported on this sector. Declining commercial contracting was noted by Cleveland, Atlanta, St. Louis, and Kansas City; however, New York reported an increase, and public construction was up in the Cleveland and Chicago Districts. Commercial vacancy rates were generally reported to be steady, although Atlanta and Chicago noted some increases. More space has become available for sublet as Internet and high-tech firms have closed or reduced operations. Reports of such availability came from Boston, New York, Philadelphia, Kansas City, and San Francisco. Nevertheless, commercial rents have been steady to rising in most of these districts.

Reports on residential construction were generally positive. New York, Richmond, Atlanta, Minneapolis, and Dallas reported increases in home building, although gains were modest. Residential construction activity was steady in Philadelphia and Kansas City and down in St. Louis. Adverse weather was blamed for the slowdown in St. Louis.

Sales of new and existing homes continue to be fairly brisk in many regions, bolstered by lower mortgage interest rates. Richmond, Atlanta, Chicago, and St. Louis reported stepped-up home sales. Such sales were steady in the Philadelphia District, and down in the Kansas City and San Francisco Districts. New York and Philadelphia reported steady price appreciation for both new and existing homes, but Atlanta noted some price concessions by builders in its District.

Rising costs for farm inputs have negatively affected farm finances. Increased costs of fertilizers and pesticides were reported by Chicago, Minneapolis, Kansas City, Dallas, and San Francisco. Grain production in the Richmond District has been hurt by low soil moisture levels. Dry conditions have also reduced pasturage in the District. Agricultural production in the Dallas District has also been impaired by dry weather, but recent rains have improved prospects for the wheat crop and cattle forage. In general, grain prices remain low, but cattle prices appear to be firming.

Natural Resource Industries
Higher prices for oil and natural gas have stimulated exploration activity in the Minneapolis District and boosted the rig count in the Kansas City and Dallas Districts. Drilling has been constrained by limited availability of manpower and equipment, but Kansas City reports that new equipment will soon be in service. In contrast to oil and gas production, mining remains weak as low commodity prices and high energy costs squeeze mine profitability. Minneapolis reported recent and prospective reductions in output of lead, aluminum, copper, and iron.

Financial Services and Credit
Bank lending, other than residential mortgage refinancing, was lackluster in most Districts. Business loan demand eased in Atlanta, Chicago, St. Louis, and Kansas City. Commercial banks in the San Francisco District reported decreased demand for business loans for capital spending and plant expansion and increased demand for asset-based loans. New York, Philadelphia, and Cleveland indicated that commercial and industrial loan demand in their Districts has been steady. Philadelphia, Richmond, and San Francisco reported that business loan demand has been restrained as firms in a variety of industries have cancelled or postponed plans to expand their operations. In particular, high-tech, telecommunication, and Internet firms have scaled back their activities.

Consumer lending decreased in Philadelphia, Atlanta, and St. Louis. Chicago noted an increase in credit card usage and outstanding balances. Mortgage lending for home purchases rose in New York and Chicago, fell in Philadelphia and Atlanta, and was steady in Kansas City. As mortgage rates have fallen, refinancing activity was reported to have picked up in New York, Cleveland, Atlanta, Chicago, St. Louis, and Kansas City.

Commercial banks in several Districts have tightened credit standards. New York, Richmond, Atlanta, St. Louis, Dallas, and San Francisco noted that banks in those Districts had tightened standards and stepped up monitoring of borrowers, especially for business loans and commercial real estate loans. Banks in the St. Louis District indicated that nonperforming loans have increased, but banks in the Atlanta and Dallas Districts reported that loan quality has been steady.

Employment and Wages
Most Reserve Banks continue to describe labor markets in their Districts as tight, but a number noted recent signs of easing. Greater availability of workers was noted by Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Demand for manufacturing workers fell in Cleveland, Kansas City, Chicago, and Minneapolis. Hiring of construction workers eased in Kansas City. Demand for information technology specialists declined in Boston. Demand decreased for temporary workers in a variety of industries in Boston and Chicago, although Richmond reported that the market for temporary workers there was mixed. Strong demand persists for clerical workers in many industries in New York, Cleveland, and San Francisco. Atlanta, Minneapolis, and Kansas City reported that nurses and other health care workers remain in high demand.

Employers reported some easing of wage pressures in Boston, New York, Minneapolis, and Kansas City. Employers in San Francisco have reduced or eliminated signing bonuses. Despite easing wage pressures, employee benefit costs, especially for health insurance, continue to rise. New York, Atlanta, Minneapolis, and San Francisco indicated that businesses in their Districts are facing large increases.

Several Reserve Banks noted lower retail prices during January as stores offered deep discounts to sell winter goods. In February, retail prices were more stable. Nearly all Districts reported higher energy and natural gas prices. In most Districts, firms indicated that they have not passed higher fuel and energy costs on to their customers, but businesses in the Dallas and San Francisco Districts have been raising prices or imposing surcharges to cover the additional costs. According to reports received by Reserve Banks, price pressures have not increased for most products other than energy and petroleum-based commodities. Boston noted some increases in metals prices and New York reported higher software prices. Steel makers in the Chicago District have announced price increases.

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Last update: March 7, 2001