May 7, 1997 Summary

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Prepared at the Federal Reserve Bank of Chicago and based on information collected before April 28, 1997. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials. District economies generally continued to expand at a moderate rate through March and April. Most districts indicated that retail sales were above year-ago levels. Light vehicle sales tapered off from very high March levels in most of the nation. The housing and construction industries remained strong, with commercial construction outpacing residential in most districts. Manufacturers were operating at very high levels, with new orders increasing significantly in some areas. Labor markets remained tight in most districts, with a few new reports of upward wage pressures. Virtually all districts were reporting relatively flat retail prices, while reports were mixed for raw and intermediate goods. Most districts reported a pickup in business lending activity, with some reporting fierce competition and credit standards being lowered to attract business loans. At the same time, demand was mixed for mortgage and consumer loans and a few districts were reporting tightened credit card standards. Agricultural conditions were mixed, with some reports noting above-average crop progress and improving livestock conditions. But adverse weather delayed or damaged crops in other districts and caused heavy livestock death losses and flood losses in the Minneapolis district. Energy prices continued to drop in most regions, but production in the industry remained strong. Consumer Spending Most districts reported a moderate year-over-year increase in retail sales. Only the Boston and Richmond districts, which noted strong growth, and the New York district, which reported considerable slowing, differed markedly from this pattern. Apparel sales were strong in the Boston, New York, Cleveland, Atlanta, and Chicago districts, while Philadelphia was the lone district reporting weak apparel sales. The Boston and New York districts reported particular strength in sales of building materials. The demand for electronics improved slightly in the Chicago district but remained soft there and in most other regions. Appliance sales were also soft in the Boston, New York, and Atlanta districts but were improving in the Cleveland district. Inclement weather hindered the sale of some spring merchandise (sporting goods, lawn and garden equipment, etc.) in the Chicago district. Overall retail inventories were in line with sales and/or merchants' expectations in most districts. Strength in tourism spending was noted in the Boston, Richmond, and Atlanta districts and most of the San Francisco district, where the strengthening dollar was cited as contributing to a decline in Hawaii's tourist trade. The Minneapolis district indicated that severe weather was adversely affecting their tourist trade. April vehicle sales softened in the Philadelphia, Cleveland, Chicago, and Minneapolis districts after strong results in March. Automobile dealers in the Kansas City district reported a slight increase in sales, with notable strength in light trucks and sport utility vehicles. The Dallas district reported an auto sales rebound in April, but sales for the month still fell short of last year's results. The Chicago district reported that scattered strikes were limiting the availability of some of the automakers' most popular models. Housing and Construction New home construction was reportedly strong in most of the nation, but down slightly from last year's very high levels. The Chicago and Kansas City districts experienced a pickup in new home sales from earlier in the year but did not reach last year's levels. The Cleveland and New York districts described new housing activity as improved. The New York district also reported that remodeling activity was booming. Particular strength was noted in multifamily construction by the Chicago, St. Louis, and Dallas districts, while the Atlanta district reported softening in this segment of the market. Existing home sales were mixed across much of the nation. The Richmond district said the market for existing homes was "brisk," while the Minneapolis district reported softening from "exceptional strength" earlier in the year. Commercial real estate remained very strong through most of the nation. Declining office vacancy rates and increasing rents were reported by most districts. Leasing activity was described as "torrid" by the New York district. The Richmond, Atlanta, St. Louis, and Minneapolis districts all reported an increase in office construction. The Atlanta, Chicago, Dallas, and San Francisco districts were reporting strong industrial activity. Manufacturing Overall manufacturing activity increased across much of the nation despite scattered auto-related strikes which were affecting several districts. Industrial activity reportedly increased in all but the New York and Dallas districts. The Dallas district noted weakness in paper, box, and most construction-related products. The Boston district reported "solid" year-over-year gains due in part to strength in biotech instruments and computer networking equipment as well as a recovery in the aerospace industry. Expansion in the aerospace industry also contributed to manufacturing strength in the Atlanta, St. Louis, and San Francisco districts. Strength in the steel industry was cited in the Cleveland and Chicago district reports. Demand for capital equipment was strong in the Cleveland and Richmond districts. Apparel and garment production strengthened in the San Francisco, Dallas, and Richmond districts but fell off in the Atlanta and St. Louis districts. Strong sales boosted light vehicle production earlier in the year, but recent strikes against automakers and their suppliers idled plants in several regions, most notably the Chicago and St. Louis districts. However, contacts in the Chicago district had yet to feel any significant impact from these strikes. Surveys indicated broad-based gains in new orders in the Cleveland, Chicago, and Philadelphia districts, while new orders in the Richmond district "surged." Contacts in the St. Louis district indicated that demand for their manufactured goods had increased and a contact in the Minneapolis district reported "We have plenty of new orders." One-quarter of the Boston district's manufacturing contacts indicated that they were facing capacity constraints, but slight declines in order backlogs and delivery times in the Philadelphia district suggested that "demand was not pushing against capacity limits." Banking and Finance Overall lending activity was decidedly split, with most of the strength on the business side and most of the weakness on the consumer side. The Philadelphia, Chicago, St. Louis, Kansas City, and Dallas districts all reported increases in business lending. The Cleveland and Richmond districts noted that business lending was mixed. None of the twelve districts reported an outright decrease in business lending during this reporting period. Fierce competition for business customers was cited in the Cleveland, Richmond, Chicago, and San Francisco reports. Credit standards for commercial loans were reportedly lowered in the Chicago and San Francisco districts and more favorable loan arrangements were noted in the Richmond district. On the consumer side, only the Kansas City district was reporting an increase in overall lending activity, albeit slightly. Most districts were indicating flat or decreasing activity. Mortgage lending had declined noticeably in the Cleveland, Richmond, and St. Louis districts and had become "spotty" in the Chicago district. The New York and Kansas City districts were reporting increased mortgage lending activity. Consumer credit standards were being tightened in the Philadelphia, Chicago, and Dallas districts. Two districts, New York and Cleveland, reported slight improvement in consumer delinquency rates while a contact in the Chicago district noted an increase in store credit card delinquencies following a period of flattening earlier in the year. However, overall bank asset quality and/or loan quality was reported to be good in the Cleveland, Atlanta, and Chicago districts. Labor Markets, Wages, and Prices Tight labor markets and shortages of qualified help persisted throughout much of the nation in March and April. Two districts, New York and Chicago, reported further tightening, while the St. Louis district noted fewer reports of tight labor markets. Labor shortages existed in each district, with computer-related and other highly skilled workers cited most often. Employment growth lagged the nation in the Cleveland and Chicago districts, though the latter noted an increase in manufacturing employment recently after trending downward in 1996. Despite tight labor markets, upward wage pressures remained generally subdued. The notable exceptions are those areas and occupations where serious shortages existed. In addition, the Minneapolis district noted new reports of upward pressure on manufacturing wages. Increased turnover rates were reported by the Boston, Cleveland, and Atlanta districts. Increased use of bonuses to attract workers was reported in the Dallas and Cleveland districts. Prices for raw materials were reportedly flat to down in the Boston, New York, Cleveland, Chicago, and Minneapolis districts. In addition, declining energy prices were noted in the Chicago, Minneapolis, Kansas City, and Dallas districts. Contacts in the Philadelphia, St. Louis, and Kansas City districts reported increases in some raw material prices and only the St. Louis district cited an increase in energy prices. Costs of construction materials--especially lumber, drywall, and concrete--increased sharply in the Richmond district. Significant resistance to price increases persisted in most districts. Consequently, most districts reported that prices at the retail level remained subdued. There were exceptions, however. Continued strong demand enabled many retailers in the Boston district to increase their prices and contacts in the Chicago district reported a reduction in the use of discounting to move inventory. Agriculture and Natural Resources The agricultural reports were mixed. Above-average progress in crop plantings was indicated in reports from the San Francisco, Richmond, and Chicago districts, while the St. Louis, Kansas City, and Minneapolis districts noted delays in plantings and/or crop development. A late freeze damaged fruits and vegetables in the St. Louis and Richmond districts and wheat in the Kansas City district. An early April blizzard added to the high winter death losses of cattle in the Dakotas. By contrast, improved market conditions ended the culling of most cattle herds in the Kansas City district and started a rebuilding of herds in the Dallas district. Hog numbers were reported to be growing considerably in some areas of the Richmond district, while the Chicago district noted that tougher environmental restrictions on larger producers were delaying the expected expansion. Energy industry activity increased in the Minneapolis, Kansas City, and Dallas districts despite continued price decreases. Refinery profit margins were increasing for the Dallas district's energy industry since crude prices were falling more rapidly than product prices, and demand was reportedly strong enough to support an additional 10 to 20 drilling rigs in the Gulf of Mexico. Return to top         Boston