|Skip to content
Economic activity in the Seventh District edged up in October before leveling off in early November. Contacts generally expected activity to continue to "bounce along the bottom" into 2010. Consumer spending was mixed. Business spending was flat except for an increase in temporary hires. Manufacturing activity benefitted from inventory restocking, but this slowed in November. Commercial real estate conditions deteriorated, but residential real estate conditions continued to improve. Credit conditions, while still tight, improved marginally. Price pressures increased for some commodities, while wage pressures were minimal. Wet weather hampered the harvest even further.
Consumer spending since the previous reporting period was mixed. Auto sales increased in October, but leveled off in early November. Despite the flattening in sales, auto dealers reported that inventories remained in line with sales. As a whole, retail sales excluding autos were down slightly over the same time period, though sales of clothing and entertainment items improved. In addition, contacts indicated that sales were better than expected at several large retailers. Optimism for the upcoming holiday season increased and contacts reported more interest in big-ticket items like furniture and household appliances. Black Friday promotions were expected to be substantial as customers remained price sensitive.
Business spending was little changed from the previous reporting period. Contacts again indicated that they were holding the line on costs, adding inventory solely to replace depleted stocks and limiting capital expenditures and hiring. Labor market conditions remained weak with hiring limited outside of healthcare and education. Unemployment in the District increased. A contact noted that the duration of unemployment spells continued to rise, citing as a factor the growing mismatch between the mostly entry level jobs available and the experience level of unemployed workers in many local areas. In the manufacturing sector, the recent increase in activity resulted in longer hours and temporary hires, but most contacts indicated that permanent labor force additions were not expected. Contacts in retail trade indicated some seasonal hiring was taking place, but at reduced hours. However, a recruitment firm indicated that expectations had improved and some clients had begun planning for future hiring. In addition, a large staffing firm reported that billable hours had increased in recent weeks; most of this was in entry level industrial jobs, but some modest improvement in professional services was also noted.
Construction and Real Estate
Construction activity decreased in October and early November. Builders indicated that they were maintaining a minimal level of speculative home capacity to meet the current low level of demand, and few expected construction to increase much in 2010. This sentiment seems to contrast with some continuing signs of improvement in residential real estate conditions: namely, stabilizing rents and prices and declining inventories of unsold single-family homes. Contacts indicated that the renewal and expansion of the federal homebuyer tax credit would help to support demand, as home sales slipped prior to the original expiration deadline for the credit. The multifamily housing market, on the other hand, deteriorated further as credit remained very tight for potential buyers of condominiums and townhomes. Demand also continued to be weak for nonresidential construction, with public construction accounting for the vast majority of activity. Competition for stimulus-related projects scheduled to begin in the coming year was indicated to be fierce. Commercial real estate conditions deteriorated again. Vacancy rates increased putting further downward pressure on rents, with owners actively renegotiating lease agreements in order to preserve occupancy.
Manufacturing activity leveled off from the previous reporting period as the restocking of inventories slowed. Automakers reported that sales in early November were weaker than expected as dealer pricing and customer credit conditions were only marginally better than in October. However, they see demand gradually firming. In addition, inventories are at comfortable levels. Auto suppliers benefitted from the increase in auto sales; although with the rebuilding of auto inventories slowing in early November, contacts reported that orders had flattened. Steel production increased on the basis of strong demand from the auto sector as well as low service center inventories. In contrast, tool and specialty metal manufacturers indicated that their customer's inventories were still elevated, holding back activity. Aerospace remained a bright spot with aircraft manufacturers building inventories. Inventories of heavy machinery remained elevated despite the fact that increased road building was helping to spur demand for construction equipment. Orders for medium and to a lesser degree heavy-duty trucks increased in order to meet pending 2010 EPA admission standards, but overall activity remained quite low. In contrast, demand for pharmaceuticals continued to be strong. Furthermore, favorable terms of trade and rising foreign demand led to export growth, particularly to Asia and South America.
Banking and Finance
Credit conditions improved marginally since the previous reporting period. Credit spreads narrowed, but longer-term yields increased leaving net corporate funding costs up slightly for a number of District firms. Banking contacts reported a marginal increase in C&I loan demand, however most of this borrowing was going to refinance or pay off existing debt. Contacts also indicated greater interest in mergers and acquisitions and distressed real estate investment. Lending terms continued to improve, but credit policy remained tight with standards elevated. Credit conditions were particularly tight for residential and commercial developers. Asset quality showed further signs of stabilizing, and some recent improvement was noted outside of commercial real estate. Banks continued the process of deleveraging with contacts indicating that the pool of creditworthy borrowers was not expanding rapidly enough to justify credit expansion. The reluctance of banks to realize expected losses on commercial real estate loans was also cited as a factor holding back the flow of credit. Liquidity in the secondary mortgage market is a concern with the end of the Fed's agency security purchase program nearing and increasingly stringent GSE guidelines for condominiums and townhomes.
Prices and Costs
Price pressures increased slightly in October and early November. Contacts cited increases in the price of steel and specialty metals like aluminum, nickel, and copper as well as higher prices for resin, plastics, and lumber. An increase in energy prices was also reported, although natural gas prices remained low. Pass-through of cost pressures to downstream prices was small on balance, as contacts indicated pricing power remained limited. Wage pressures were minimal. However, some contacts noted that they had restored non-wage compensation that they had suspended earlier in the year.
Precipitation continued to hamper the harvest, particularly for corn. Corn harvesting was behind the pace of a year ago, which was a late harvest as well. Toward the end of the reporting period, the soybean harvest neared completion. Comments on corn and soybean yields varied from "so-so" to "better than expected" to "unbelievable." The corn crop was damaged in some areas, and across the District there were other problems caused by wetness. Wet corn strained equipment, leading to an abnormally large number of repairs and shortages of some parts. Moreover, costs were much higher than normal to dry corn for storage and shipment, and there were also shortages of liquid propane for dryers. Elevators were forced to limit the amount of wet corn accepted some days. Corn and soybean prices rallied higher in October and early November. However, margins for crop farms were thought to range from negative to slightly positive. Milk and hog prices were up some, but cattle prices lagged. Losses continued for livestock operations. Expectations increased that financially stressed farmers would be forced to sell or liquidate assets. Higher oil prices assisted the ethanol industry in generating enough income to cover costs.