April 20, 2005
Federal Reserve Districts
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From late February through the first full week in April, District business conditions continued to show signs of improvement, although somewhat less evenly than earlier this year. Among manufacturers, activity at the District's durable goods facilities continued to trend up, and contacts characterized production as steady among nondurable goods manufacturers. Reports from retailers, which had indicated an improving environment earlier in the year, suggested some deterioration in recent weeks. Residential builders saw seasonal improvements in sales, but sales were slower than at this time last year; commercial builders continued to report modest improvements in conditions. At the District's banks, commercial borrowing continued to strengthen. But demand for shipping services, while still strong, showed some signs of slowing.
Input cost increases seemed slightly less pronounced in recent weeks, with isolated increases reported for fuel and other petroleum-based products. Steel-related product prices also remain high; however, steel spot prices are expected to fall. Interestingly, effective steel prices for many firms may actually rise as contracts--many of which were negotiated when steel spot prices were much lower--are adjusted to reflect more recent spot prices. Several steel industry contracts are currently being renegotiated.
Hiring still seemed limited throughout the District, though staffing-services companies reported an increase in openings and a shrinking supply of prospective candidates. Recruiters reported that it took longer than at this time a year ago to find matches for available openings.
Nondurable goods manufacturers reported that production was steady through the last six weeks and up slightly for several producers on a year-over-year basis. The level of new orders remained roughly flat. Though production levels have been steady for some time, many producers expect an acceleration in sales in the months ahead.
Among all manufacturers, hiring remained somewhat sluggish. Durable goods producers added to their staffs more frequently than their counterparts in nondurable goods manufacturing, though the former plan fewer increases in the months ahead. And while most nondurable goods producers plan few additions to their capital stock, many durable goods manufacturers intend to increase their investment spending through the course of the next six to twelve months, with several noting a need to increase capacity.
Input costs increased only slightly in recent weeks, though they are still up substantially from a year ago. Many manufacturers noted increases in fuel costs, though steel product prices were expected to fall. Several contacts noted that they had begun to raise prices in an attempt to restore their margins and undo the impact of a steady string of increases in input costs. However, firms have generally been unable to completely offset these cost changes, and they continued to report reduced margins.
Specialty stores and grocers, however, generally reported gains in their businesses. And automobile dealers saw March sales rebound slightly. Nevertheless, apart from auto dealerships, most contacts were somewhat less sanguine about their sales prospects in the foreseeable future. While incentives reportedly remained generous at District dealerships, prices at other retail outlets were characterized as stable.
Nonresidential builders continued to report rising activity, with sales for many firms exceeding those of this time last year. Firms also reported increases in inquiries from prospective clients, leaving many contacts optimistic in their assessment of the outlook. While business conditions improved across a range of nonresidential construction categories, growth in public building projects seemed particularly pronounced. Interestingly, input costs increases seemed less severe recently for many firms, though many contacts anticipate an increase in concrete and steel prices. Builders reported that their prices were stable, and most had merely maintained their current staff sizes.
Trucking and Shipping