October 30, 1996 Summary

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Prepared at the Federal Reserve Bank of Minneapolis based on information collected before October 22, 1996. 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. Moderate expansion of business activity characterizes the economy in most Federal Reserve districts, but on balance the pace of growth reportedly has slowed somewhat. Slower growth is reported in the Southwest and along the eastern seaboard except for New England. The Midwest continues to show moderate to strong growth. Boston and San Francisco, two districts which had lagged much of the rest of the nation through the first half of the 1990s, indicate an improved performance. Although there are few indications of significant price increases for raw materials, goods or services, reports of upward pressure on wages are more widespread. Consumer Spending On balance, consumer spending is best characterized as moderate. There are some signs of strength, but no areas where sales are booming. There is considerable variation in patterns of spending both by region and by category of merchandise. Boston describes double-digit growth in furniture and hardware, but slow sales for discounters and a shoe chain. In the New York district, apparel is strongest and durables such as appliances lag. The same pattern is true for Kansas City. Philadelphia describes strong women's and youth clothing sales, but notes that some retailers ascribe this strength to price cuts. Cleveland reports strength in sportswear and major appliances, with weakness in computers, toys and home items. Retailers in the Atlanta district are meeting their targets, with greatest strength in apparel. Conditions are similar in Chicago, where apparel leads home improvement goods and appliances in gains over year-earlier levels. Chicago and Dallas characterize the retail sector as one of intense competition, but they are generally optimistic about the upcoming holiday season. Competition is also sharp in the Minneapolis district, but sales tax revenues indicate moderate strength in general merchandise sales. San Francisco indicates that demand for retail goods and services was solid overall. Reports on the auto sector are mixed. They are particularly strong in the Minneapolis district, where favorable crop incomes and overall economic strength bolstered September vehicle sales. For Cleveland, sales are up compared to a year ago, but somewhat below early 1996. Kansas City saw some slowing in September, but dealers expect sales to be "fairly strong over the remainder of the year." For Philadelphia, vehicle sales are reportedly steady, and for Dallas sales have slowed more than expected. Tourist spending is similarly mixed, with greatest strength along the East Coast. Tourism "remains strong" in New York. Richmond reports substantial strength in inland areas not affected by hurricanes. Atlanta lists brisk activity in Florida, the Mississippi Gulf Coast and New Orleans, and notes an upbeat outlook for tourism and convention activity. The Upper Midwest is less favored, with Minneapolis reporting a slow or somewhat disappointing summer season in its states. Manufacturing On balance, the manufacturing sector is largely stable to stronger, with considerable regional variation. Boston reports that a near majority of firms "indicate solid sales gains from a year ago." Cleveland describes the sector as strong with "some pickup noted between August and September." For Atlanta, "contacts report increasing activity." And for Chicago, activity increased in the district through early October. St. Louis notes reports of sales and employment increases and plant expansions far outnumbering reports of declines and closures. San Francisco's manufacturing sector expanded further, led by the aircraft sector. However, obvious strength in these districts contrasts with Minneapolis, Kansas City and Dallas, where manufacturing was steady to mixed; Philadelphia, where manufacturing gains in October were less widespread than in summer; and New York, where surveys of purchasing managers reported sharp improvement in local manufacturing in September. Several districts report localized effects from the auto workers strike in Canada, but none foresee significant or long-term effects. A number of districts report that manufacturing inventories are generally normal to somewhat below normal, and show little indication of either production bottlenecks or of weakening demand. Construction and Real Estate Construction is strong in several districts, but slackening in a few. New York notes that rising demand for apartments is spurring new construction, which had been dormant for some years. The Midwest is generally strong, with Minneapolis and St. Louis noting particular strength. Chicago reports increases in commercial and retail work are "offsetting some slowing on the residential side." Kansas City notes some slowing, but says that activity is still above a year ago. San Francisco characterizes the sector as generally robust, but with deceleration or weakness in some regions. However, slowing is apparent in the Southeast. Richmond describes some decrease in residential construction overall, but notes increases in materials prices and a shortage of skilled construction labor in North Carolina. In Atlanta, construction activity has fallen below year-earlier levels. Market conditions for residential and commercial real estate are mixed, with strength in the Northeast and West (New York, Boston, San Francisco) and some slackening in the Southeast (Richmond, Atlanta) and Midwest (Chicago, St. Louis, Kansas City). Agriculture The 1996 crop is turning out better than many anticipated this spring, when drought scourged the Southwest and unseasonably cold, wet weather delayed planting on the Northern Plains and in the Midwest. Although crop development still lags usual levels in several districts, there is little damage from early frosts. Cleveland reports that the corn harvest was past the halfway mark in Kentucky and starting in Ohio. Chicago describes the harvest as "well underway." St. Louis says that corn and soybeans have generally "reached full maturity," but notes that the harvest is slow in Illinois and Indiana. Minneapolis and Kansas City both tell of good to excellent yields, but with some harvest delays due to rain. The effects of drought continue to plague the Dallas district, especially corn and cotton. St. Louis also notes problems with cotton, in this case due to boll rot. Most winter wheat is grown in the Dallas and Kansas City districts; Dallas reports the new-crop condition as good, but Kansas City relates that fall planting is delayed by rain. Conditions are less favorable for livestock producers; a number of districts report continued losses for cattle ranchers. San Francisco notes a decline in beef exports to Japan. But there are some glimmers of improvement: Minneapolis reports that beef prices are not as bad as had been anticipated, while Kansas City says that profitability has returned to the feeding end of the sector and that "feedlots are filling quickly." Minneapolis and St. Louis report sharp increases in milk prices, in response to higher feed costs. The Chicago district has had more apparent cuts in hog and milk production than elsewhere but says that the rate of decline has slowed as feed costs have dropped. Energy, Mining and Forestry Natural resource sectors are generally robust. Dallas describes shortages of offshore rigs, drill pipe, and drilling crews and "little capacity available anywhere" in oil services. Kansas City activity improved somewhat from August to September, but the rig count was unchanged from a year ago. Minneapolis reports continued strong oil activity in North Dakota and very strong output in iron mines. Forest product output is reportedly steady. Financial Institutions and Credit Districts describe a financial sector that is stable to slightly stronger. New York lists increases in nonresidential mortgage loans and stability in other categories, along with some increase in delinquency rates. Philadelphia reports steady to slower loan activity. Richmond, Atlanta, St. Louis and Dallas describe little significant change. Kansas City and San Francisco note strength in loan demand. St. Louis and San Francisco describe banking competition as "fierce" and "sharp." Labor Markets Employment continues to grow in most districts. A majority, including Minneapolis, Chicago, Cleveland, Richmond, Philadelphia, Kansas City, Dallas and San Francisco, describe labor markets as tight. For Minneapolis, labor markets "constitute a constraint to increased output." "Labor shortages continue to be a problem in most areas," reports Chicago. Labor markets remained tight and wage increases more common, according to Kansas City, while Philadelphia reports that employers have had increasing difficulty finding qualified workers. The Northeast is an exception to this pattern. Labor availability is not a problem, according to Boston sources, and New York notes an acceleration in manufacturing job losses. Wages and Prices Indications of upward pressure on wages continue to spread geographically and to grow in terms of affected occupations and ranges of skill levels. Wage pressures appear most quiescent in the East. Boston reports that a couple of manufacturers have frozen wages, but that most are granting increases of 2 percent to 4 percent. New York notes increases only in bonuses from Wall Street firms, and while Philadelphia lists labor shortage difficulties, it notes acute wage increases only for some entry-level clerical workers. Similarly, while Atlanta identifies increasing reports of labor shortages, wage pressures have apparently not systematically emerged. In the rest of the country, more pay increases are evident. Cleveland identifies "steady pressure to increase wages" for some specialties, while Richmond sees wage increases in low-unemployment areas and reports expectations of upward pressures in the next six months. Chicago says that "wage pressures appear to have remained concentrated at the lower end of the pay scale, and ... this pressure may be intensifying." For Kansas City, "reports of rising wages increased," and in the Dallas district "there were more reports of labor shortages leading to wage pressures." San Francisco describes wage pressures as "moderate overall," but points to "upward pressure on the wages of entry-level workers... has been added to existing upward pressure on wages for some categories of skilled workers." The Minneapolis district apparently has the tightest labor markets, and notes "increasing reports of compensation increases." In contrast to some proliferation of wage increases, reports of price increases for raw materials, goods and services remain limited. Boston reports some increases in chemicals prices, but notes that half of manufacturers report no change in selling prices. New York reports that merchandise costs are generally flat. The cost of raw materials has not increased for most industrial firms surveyed by Philadelphia. Retailers contacted by Cleveland "have not experienced any substantial price pressures" and "note price declines in consumer electronics." Most of Atlanta's contacts expect no change in material or finished goods prices. St. Louis relates that some firms have experienced increases in raw materials prices but have been unable to pass them along, while other firms reported recent declines in raw material prices. From Minneapolis, price hikes generally remain scattered and small, while Dallas indicates "more reports of lower prices than in the last beige book," although energy and some other materials were higher. Specific exceptions to this general pattern of low price pressures include Richmond, where manufacturers report increasing prices for finished goods and raw materials in September, and Kansas City, where retail prices held steady but those for some manufacturing and construction materials rose. Return to top         Boston