January 12, 2011
Federal Reserve Districts
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The Eleventh District economy expanded moderately over the past six weeks. The energy sector continued to be a source of strength, and staffing firms reported demand held steady at high levels. Retailers said holiday sales were on track to exceed those of last year. Reports from the manufacturing sector were mostly positive. Construction activity in the district remained subdued and loan demand was weak, however.
The price of crude oil increased about $10 per barrel during the reporting period based on continued strength from Asia, better demand in the US, and a weaker dollar. Retail prices for both gasoline and diesel rose with the price of crude. The price of natural gas edged up seasonally, early in the reporting period, but fell back to near $4 per McF by late December due to weak demand and large inventories. Prices for most petrochemical products continued to rise since the last report, according to respondents.
Respondents in high-tech manufacturing said demand continued to grow at a moderate, sustainable pace since the last report. Contacts noted that production was at high capacity and inventories had increased from very lean to desired levels. Several firms said they had added slightly to payrolls. Areas of strength included smart phones and gaming consoles, while demand for computers was reported as "bouncing along the bottom." Most respondents expect growth to continue at a moderate pace for the next three to six months.
Responses from paper producers were mixed, but overall demand remains at low levels. Most expect conditions to remain stable as the economy slowly recovers. Food manufacturers noted improved sales during the reporting period. Transportation manufacturers also noted an increase in demand, and outlooks are for modest growth in 2011.
Petrochemical producers noted strong domestic and export demand, except for construction-related materials. North American producers of natural-gas based resins and plastics continue to enjoy significant advantages in export markets.
Demand for oil products continued to improve against normal seasonal trends. Refinery utilization rates moved up to the highest December levels since 2007. Margins held steady, despite the surge in the price of crude oil. Suppliers reported that refiners' confidence has improved.
Automobile sales held steady over the reporting period, and 2010 sales should show a solid increase over 2009 levels. Contacts expected sales to be strong the final week of December. Inventories rose modestly but are in the desired range. The outlook for 2011 is for continued gradual improvement.
Accounting firms noted seasonal slowness, with demand about even with the year-ago level. Contacts expect a reasonably good year in 2011 but noted demand is unlikely to pick up substantially until clarity is reached on some public and fiscal policy issues. Legal contacts noted an uptick in demand for services--primarily corporate merger and acquisitions and real-estate services. Demand overall was characterized as soft, but improving.
Reports from transportation services contacts were mixed, but mostly positive. Railroad contacts noted business is much better than this time last year and were optimistic in their outlooks. Shipping and intermodal contacts said volumes were up from year-ago levels. Airlines reported continued steady demand. Most contacts in the transportation services industry expect modest to moderate growth this year. However, one intermodal shipping contact said higher input costs had dampened his outlook.
Real Estate and Construction
Office and industrial leasing activity is spotty but appears to be moving in a positive direction, according to respondents. Commercial construction activity overall remained weak, despite increases in multifamily and hospital construction activity.