March 7, 2001
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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.
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.
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
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.
Natural Resource Industries
Financial Services and Credit
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
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.