September 6, 2006
Federal Reserve Districts
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Economic activity in the Third District increased in August, although the rate of growth appeared to ease. Manufacturers' shipments and orders increased. Retail sales of general merchandise rose slightly, but auto sales weakened. Bank lending increased, but not as much as it had in previous months. Residential real estate activity slowed sharply, but commercial real estate markets tightened.
Third District business contacts generally expect business activity in the region to continue to expand, but they have become more cautious in their outlook. Manufacturers expect further gains. Retailers anticipate only modest growth in sales. Auto dealers expect sales to remain slow. Banks anticipate slight gains in business and consumer lending but forecast a further decline in mortgage lending. Commercial real estate contacts expect the demand for office and industrial space to continue, but residential real estate agents and home builders anticipate further declines in home sales.
Overall, manufacturers expect demand for their products to continue moving up at about the current rate of growth. About 40 percent of the firms contacted in August expect their shipments and orders to increase during the next six months; about 20 percent expect decreases. Capital spending plans reported by Third District manufacturers in August were less robust than they were in previous months. On balance, manufacturers have scheduled only marginal increases in outlays for new plant and equipment during the next six months.
Auto sales in the region slowed in August, and dealer inventories increased. Domestic manufacturers have stepped up incentives to clear out 2006 models before delivery of 2007 models, but most area dealers do not anticipate an upturn in sales.
Bankers in the District expect business and consumer lending to increase in the months ahead, but not strongly. They also expect gains in credit card lending. However, they anticipate a further decline in demand for residential mortgages.
Real Estate and Construction
Residential real estate agents and homebuilders reported a sharp slowdown in sales in July and August, compared with the spring months and with July and August of last year. Real estate contacts noted that the number of existing homes for sale and the time they are on the market have been increasing. Price appreciation of existing homes has slowed or stalled in many areas. For new homes, builders are offering more features without charge. Homebuilders and real estate agents expect the pace of sales to slow further during the rest of the year.
Prices and Wages
Employers in many industries reported that labor markets remain tight for both skilled and unskilled workers. In service industries, firms report rising turnover among information technology, finance, and managerial occupations. In contrast, some residential construction companies have laid off workers as demand for new homes has declined. Wages are generally reported to be rising slightly faster now than at this time last year, but salaries offered for positions that are difficult to fill have increased substantially. Firms in all industries continue to report increases in health care costs.