The Beige Book May 5, 1999



New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of Atlanta and based on information collected before April 26, 1999. 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.

District reports indicate that the U.S. economy continues to operate at generally strong levels and to expand at a moderate pace. Consumer spending remains healthy, led by strong motor vehicle sales. Most Districts noted improvements in manufacturing activity; however, weak foreign demand is a problem for some industries in some regions. Both residential and commercial construction remain at high levels, although some slowing in the rate of expansion was noted in several Districts. Reports on agriculture have been mixed, while the outlook in the energy sector has improved. Loan demand is generally described as strong in many areas of the country. Most Districts continue to report tight labor markets, but these conditions are apparently not often translating into higher wages; however, there are reports that non-wage compensation is increasing. Prices generally remain stable, with the exception of oil and gas, and some building materials, which are in short supply.

Consumer Spending
Most areas of the country experienced year-over-year retail sales gains during March and April. Inventories continue to be balanced. Many Atlanta and Chicago retailers reported that the early Easter holiday shifted purchases into March while weakening April sales results. New York and Dallas reports indicate that sales growth has moderated since January and February, while sales have improved from earlier in the year in the Kansas City and Philadelphia Districts. Retailers in the Cleveland, Dallas, Kansas City and Richmond regions expressed optimism going forward.

Motor vehicle sales grew at a healthy pace in most Districts in March and early April. Sales were strong in the Richmond, Kansas City, Chicago, Philadelphia, and San Francisco Districts. In the Philadelphia District, sales of sports cars and luxury models increased, while sales of trucks and sports-utility vehicles held steady, demand was particularly strong for sports-utility vehicles in Dallas. Chicago reports that new and used light vehicle sales were robust. After a strong first quarter, some Cleveland dealers report a slowdown in early April.

Tourism and Convention Business
The tourism and business travel sector continues to post strong numbers, according to most District reports. Tourist activity remains strong in most of Florida, according to Atlanta, but there is concern about a falloff in international visitors to south Florida. Gaming continues to thrive in Mississippi with large crowds packing a new resort. Richmond reports record attendance at Washington D.C.'s National Cherry Blossom Festival and an increase in popularity of coastal resorts. Inquiries are up substantially from a year ago for destinations in the Minneapolis District. Summer bookings are ahead of schedule in the St. Louis District.

Most Districts report recent improvement in the manufacturing sector. Manufacturing is generally strong in Chicago. In Philadelphia, there is a "broad based improvement" for some manufacturers. Boston reports that the strongest trends are in medical and automotive equipment suppliers, and most manufacturers contacted expect business to expand in coming months. Recently in Richmond, factory shipments and new orders have risen sharply. Some manufacturers in San Francisco continued to be hampered by international trade conditions, but demand for computers and electronic components remains stable, and production of telecommunications equipment is at high levels. Richmond and Atlanta report growing activity for makers of telecommunications and electronics equipment. Some industries that showed softness earlier in the year, such as industrial machinery components, have improved in Cleveland. Strength in housing markets and commercial construction is boosting orders for building materials in Atlanta, Philadelphia, and Dallas. In Minneapolis, while there are signs of expansion in the factory sector, the weak international economy is curtailing some firms' output. Foreign demand also remains weak for firms in Philadelphia. Chicago and Cleveland report that an inventory overhang has slowed an anticipated recovery in the steel industry. Apparel production and orders remain below those of a year ago in the Atlanta region, and some contacts there are not optimistic about the near-term outlook because of fierce foreign competition. Aerospace production has softened in the Cleveland District.

Real Estate and Construction
Reports on residential construction varied around the country. The pace of residential building remained brisk in the Cleveland District, with some recent improvement. New York also reported strong recent growth in permits. Home construction is described as "vigorous" in California. Minneapolis reported large year-over-year increases in housing permits in some areas. In Atlanta, new home construction was flat to up slightly since late 1998. Some parts of the Kansas City District experienced starts slightly below last year's pace. February permits in the St. Louis region improved from earlier in the year but remained below year-ago levels.

Overall, home sales continue at healthy levels and demand remains strong. In the Chicago District, existing home sales remained brisk in most areas, exceeding expectations. Home sales have strengthened since February in the Kansas City region, while Realtors in the Richmond District report significant increases in home sales. Many areas of the St. Louis region are being referred to as a "sellers market," and the New York housing market is described as "tight." Boston markets are characterized by strong demand and improving sales. Most Realtors in the Atlanta District said that home sales were mixed in March and flat in early April.

Commercial construction continued at strong levels in most Districts, although there were a few reports of slowing activity. In the Atlanta District, continuing high levels of commercial building fell somewhat below the year-ago level. Construction is described as strong in the Chicago District and continues at a brisk pace in the San Francisco District. Occupancy rates stabilized during the first quarter in New York, while leasing costs escalated. Construction is running ahead of last year's levels in the Minneapolis region, while development was recently mixed in markets in the Cleveland District.

Financial Services
District reports on banking activity indicated that overall loan demand remains fairly strong. The Dallas, Atlanta, and Chicago Districts report that lending growth was robust. Lending increased in the Philadelphia, Kansas City, and New York Districts but declined in the St. Louis District and was mixed across sectors in Cleveland. Consumer credit grew strongly in the Dallas, Atlanta, and Chicago Districts, leveled off in the Cleveland and St. Louis Districts, and decreased slightly in the Kansas City District. Commercial loan demand was strong in the Richmond and Chicago Districts, expanded in the Philadelphia, Kansas City, Atlanta, St. Louis, and New York Districts, and flattened in the Dallas and Cleveland Districts. Mortgage demand grew in Kansas City. Refinancing slowed in the Richmond, Atlanta, and New York Districts.

Credit quality was little changed overall. In New York there was some tightening of standards for commercial loans, and delinquency rates fell on consumer loans. The quality of business and consumer loans was good, and consumer delinquencies were down in Chicago. There have been no changes in credit quality, and consumer and commercial delinquencies remain low in Cleveland, and little change in credit standards in the Richmond region. Intense competition may have led to some relaxation in terms and covenants in the commercial sector in Atlanta.

Agriculture and Natural Resources
Agricultural reports were mixed across the country in March and early April. In Minneapolis, agriculture is still in the doldrums, as depressed livestock, corn, soybean, and wheat prices continue to hurt farmers. While Texas livestock conditions remained mostly good, lack of winter preparation damaged some of the wheat crop. Farmers made good progress on spring tillage and planting in recent weeks reports the Richmond District, and in the Kansas City District the winter wheat crop remains in good shape, and growing conditions continue to be generally favorable. Reports from Chicago indicate that low commodity prices continued to adversely impact farmers as spring plantings began; sales of many agricultural products were hampered by weak export demand in San Francisco. Weather has been favorable for farmers, and crops are reported to be ahead of schedule for the season in the Cleveland District, while St. Louis reports that favorable weather conditions and abundant moisture levels have resulted in a winter wheat crop that is in mostly good-to-excellent condition.

The energy sector is stabilizing. Natural gas exploration has picked up recently, but oil exploration still remains weak in the Minneapolis District. In the Dallas District, drilling has not increased in response to higher oil and natural gas prices. After declining in March, the rig count in the Kansas City District began to edge up during the first few weeks in April, and Atlanta reports that rising oil and gas prices have improved the outlook for Louisiana companies linked to the oil and gas industry.

Wages and Prices
Most Districts continue to report tight labor markets, but there were no reports of significant pickup in wage increases. Some reports, however, indicate that firms are increasing non-wage compensation for higher-level personnel and are using hiring and retention bonuses to attract and hold on to skilled workers. In Chicago, concerns about labor shortages have become more pronounced. Shortages of qualified truck drivers have slowed shipping growth in Atlanta, St. Louis, and Chicago. In Minneapolis and New York, labor shortages have forced manufacturing plants to move to other regions. Tight labor markets in St. Louis are affecting many firms' plans for expansion or relocation, but wage pressures remain subdued. Labor shortages are adversely affecting builders in the Atlanta and Dallas Districts. Despite continued remarks noting tight labor markets in St. Louis, comments about wage pressures from contacts there have been "noticeably lacking."

Most prices remain stable. Building materials prices, especially for sheetrock, are increasing in the Atlanta, Kansas City, Cleveland, Minneapolis, and Boston regions. Contracted services costs have increased in New York. Low commodity prices in Minneapolis persist in depressing farm income and are curbing metal mining.

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Last update: May 5, 1999