September 11, 2002
|Skip to content
Prepared at the Federal Reserve Bank of St. Louis and based on information collected before September 3, 2002. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of the Federal Reserve officials.
District reports suggest that the growth of economic activity has slowed in recent weeks, with a good deal of variation across sectors. Although Atlanta and San Francisco reported modest improvement, most Districts indicated slow and uneven economic growth, with mixed or scattered experiences across sectors of the economy. Boston and Dallas reported little change in the overall level of economic activity.
Retail sales were generally mixed, although seven Districts reported strong sales of home furnishings or appliances. Three Districts attributed slow apparel sales to unseasonably warm weather. Back-to-school supplies were reported to have sold well in three Districts, although another District reported disappointing sales. All Districts noted that retail inventories were at desired levels, with some reporting that inventories are being kept leaner than in the past. Almost all Districts reported an increase in auto sales over 2001 levels, mostly due to aggressive financing and rebate incentives.
On the whole, manufacturing activity was sluggish, with a good deal of variation by industry and region. In particular, some Districts reported weakness in the high-tech and building materials industries, although other Districts reported strength in the auto and steel industries. The strength of the tourism sector varied across the Districts, with six indicating an increase in business and four reporting low or mixed activity. Almost all Districts noted that business travel has remained at a low level.
Most Districts reported little or no gain in employment in July and August, although three noted that the demand for temporary workers has strengthened. In most Districts, the prices of inputs and final goods increased slightly or remained flat. Despite few signs of pressures on wages, there was widespread concern about the effect that rising health care costs might have on labor costs.
Nearly all Districts reported strong residential sales and construction activity. On the other hand, commercial real estate markets remained weak. Banks in all Districts report strong demand for residential mortgages and refinancing, although business lending continued to be weak across the board. Credit quality was described as good and delinquency rates as either stable or declining.
Drought conditions have been adversely affecting crops and livestock through most of the West and large areas along the East Coast. The experience elsewhere was more mixed, with yields severely reduced in some areas and near-record levels in others. Oil prices have risen while natural gas prices have been largely unchanged. Natural gas inventories are expected to be at record high levels when the heating season begins.
Almost all Districts reported an increase in auto sales over 2001 levels, mostly due to the aggressive financing and rebate incentives offered. Inventories are at desired levels for most contacts, although many dealers are clearing out 2002 models to make room for 2003 models. Most Districts report that dealers are optimistic about sales for the next few months.
Manufacturing and Other Business Activity
Reports from the tourism sector were also mixed across Districts. St. Louis, Minneapolis, Atlanta, Kansas City, Chicago, and New York reported an increase in business, while Boston, Philadelphia, San Francisco, and Richmond observed low or mixed overall activity. Most Districts noted that the duration of leisure visits has declined and that visitors are spending less money per trip. Almost all Districts noted that the level of business travel is low, as is demand for air travel, which has been affecting hotel occupancy rates in some areas. Dallas reported that auditing activity was strong, as was the demand for some legal services. The Atlanta District noted that Mississippi gaming activity has been strong. Boston reported that the temporary employment industry and the majority of software and information technology services have seen flat-to-modest increases in sales and revenue this summer. Trucking firms in Maryland and North Carolina reported soft demand.
Labor Markets and Prices
Prices, too, remained unchanged, on average, although Atlanta, Dallas, Kansas City, and Boston reported an increase in steel prices. Prices of inputs and final goods increased slightly or remained flat in most Districts. The prices of building materials were said to be up in Atlanta, although San Francisco and Kansas City reported that these prices remained low in July and August. In almost all Districts there was concern about the rising cost of health insurance, which is leading some businesses to have higher labor costs.
Real Estate and Construction
Commercial real estate markets remained soft in Boston, Philadelphia, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco. Boston, Philadelphia, Minneapolis, and Kansas City noted increased office vacancy rates for portions of their Districts while San Francisco reported unchanged vacancy rates for commercial and industrial space. New York, Richmond, Atlanta, and St. Louis indicated little or no overall change in commercial markets. Commercial construction opportunities slowed in Cleveland, St. Louis, Kansas City, and San Francisco. Commercial realtors and contractors in Kansas City and Boston do not see any signs of improvement in the near future.
Banking and Finance
Delinquency rates were reported to be either stable or declining. However, credit standards have been tightened for commercial and industrial loans. St. Louis noted that such tightening has only occurred for small firms. Credit standards for other loans remained largely unchanged, except in Atlanta, which reported a tightening. Cleveland and Chicago reported no change in the quality of consumer or business loans; Philadelphia, however, noted a mild slippage.
Atlanta noted a surge in the number of borrowers looking to shorten the term of their loans. Cleveland reported increased competition across all lines of lending while San Francisco noted an increase only for low-risk lending.
Agriculture and Natural Resources
Livestock producers in the Kansas City, Richmond, and Dallas Districts have been providing supplemental feed to livestock due to dry weather and poor pasture conditions. Richmond also indicated instances of hauling water to livestock. Richmond, Dallas, and San Francisco reported that livestock farmers were paring herds, with liquidation under way in some areas of the Dallas District.
Oil producers in the Dallas and Kansas City Districts reported increased oil prices, while natural gas prices, on average, were largely unchanged. Natural gas inventories declined slightly in the Dallas District but are expected to be at record high levels when the heating season begins. Reports from Dallas, Kansas City, and Minneapolis indicate that the count of active oil and gas drilling rigs remained unchanged in July and August. The Dallas District also noted that foreign drilling activity was down slightly but that revenues were up due to the complexity of the projects.