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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of Dallas and based on information collected before June 9, 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.

All twelve district economies expanded in May and early June, although there were pockets of weakness and evidence of capacity constraints restraining growth in some industries. Consumer spending growth was weaker than reported in the last Beige Book, with several districts reporting slower growth in retail and auto sales. Manufacturing activity appeared to remain at high levels and was growing in many districts, but there were some areas of weakening. Construction and real estate markets were strong across much of the country, but some districts reported pockets of weak growth. Overall lending activity was mixed, with stronger demand for commercial than for consumer loans. Labor markets tightened, leading to some wage increases. Although energy prices and some real estate prices were up, there were few reports of other price increases, and business contacts suggested that robust competition restrained upward pressure on final prices of goods. Agricultural reports were generally favorable, but cool weather and adverse moisture conditions hindered production in parts of the country.

Consumer Spending
Many districts reported weaker retail sales growth in May than in April. Unseasonably cool weather in the Cleveland, Chicago, New York, Richmond and St. Louis districts dampened sales growth. Sales were "weak" in the Atlanta district, and growth "downshifted" in the Dallas district. However, sales growth was "steady" in the Boston and Philadelphia districts, "adequate" in the San Francisco district, had "edged up" in the Kansas City district, and was "brisk" in the Minneapolis district. Sales were lower than anticipated in the Atlanta, Dallas and New York districts, but sales growth either met or exceeded retailers' expectations in the St. Louis district.

Many districts reported slow sales of seasonal goods, such as air conditioners, swimwear, and lawn and garden supplies. The Cleveland district reported a dip in personal computer sales following strong sales in April. Apparel sales "have been notably soft" in the Cleveland district, with the exception of specialty clothing, such as better sportswear and business casuals. Apparel sales have been good in the Chicago and New York districts, however, and the Philadelphia district reported gains in men's clothing and home furnishings. Outdoor furniture and gardening products were the "biggest sellers" in the St. Louis district.

Inventories were in line with sales in the Atlanta, Boston, Chicago, Kansas City, Philadelphia, San Francisco and St. Louis districts, but excess inventory was a problem for some retailers in the Cleveland, Dallas, New York and Richmond districts. Dallas and Chicago district contacts canceled purchases to keep inventories in line. Some New York district contacts expressed mild concern about an overhang of summer merchandise, but said inventories were "generally in good shape." While retailers in the Cleveland district were generally satisfied with inventory, a few noted slightly higher than desired apparel inventories.

The Cleveland, Philadelphia, St. Louis and San Francisco districts reported slow auto sales growth. Sales were "little changed" in the Kansas City district, and the Dallas district reported good sales "in most major cities but a continued trend down in Dallas and Fort Worth." Auto sales in Minneapolis were "brisk."

Most districts reported growth in manufacturing activity, and a few reported a very high level of activity. Manufacturing production was at "high levels" in the Cleveland and Kansas City districts, while "tightening capacity constraints were noted by various respondents" in the San Francisco district. Overall shipments remained at "record levels" in the Richmond district. Manufacturing activity also continued to expand in the Chicago, Dallas, New York and Philadelphia districts. Sales growth was reported as "moderate" in the St. Louis district, and firms continued to report "good sales" in the Minneapolis district. The Boston district reported that recent business was "flat or up at a single-digit rate compared to a year ago." Only the Atlanta district reported "production is slowing overall."

Production was up for aircraft and related products in the San Francisco district, while the pace of new orders quickened for paper goods, textiles and apparel in the Richmond and Dallas districts. Orders also were up for electrical equipment and industrial machinery in the Richmond district. Plant expansions are under way in the electronics, telecommunications and chemical industries in the Atlanta district. The Atlanta and Dallas districts reported strong demand for equipment by the energy sector. The Dallas and St. Louis districts noted a pickup in sales of construction-related manufactured products, although Dallas noted that sales were below last year's "gangbuster" levels.

Strong demand for steel and heavy equipment led to a pickup in production in the Chicago district, and steel producers reported capacity utilization remained very high. But the Philadelphia district noted "some slippage in demand" by primary metal and instrument producers, and the Cleveland district reported "some flattening in steel orders, although production is steady at a high level." In the San Francisco district, demand for machine tools grew but at a slower rate than earlier, with growth focused on the export market.

High-tech manufacturers in the Dallas and San Francisco districts reported supply constraints for some computer components and slower demand growth for telecommunications products. The Richmond district reported weaker shipments by the apparel, furniture and printing industries. There was continued weakness for soft goods in the Atlanta district, while the Minneapolis district reported that output of packaging materials was weak.

Some inventory problems were noted. One automaker in the Chicago district said weak sales had resulted in a sizable inventory buildup, while the Dallas district reported inventories of brick and cement were too high. Manufacturers have been trimming their inventories in the Kansas City district, and some say they plan further reductions because stocks exceed desired levels. In the Chicago district, inventory-to-sales ratios declined despite some inventory building. During the past month, order backlogs inched up for manufacturers in the Philadelphia district, and delivery times lengthened slightly and inventories edged down.

Temporary-employment firms and other service providers continued to report strong activity in the Boston, Dallas, Richmond and San Francisco districts. Tourism activity was strong in the Atlanta, Minneapolis, New York, Richmond and San Francisco districts.

Construction and Real Estate
Real estate markets and construction activity "remained strong" in most areas of the San Francisco district, while "strong residential and heavy construction" was reported in the Minneapolis district. Construction activity remained very strong in the Chicago district, "particularly in nonresidential segments."

Several districts reported increasing commercial real estate activity but slower growth in home sales than at this time last year. Residential real estate "continued its strong course" in the Boston district, although "somewhat less so than earlier." The Chicago, Cleveland, Kansas City and Philadelphia districts reported that home sales had slowed since the beginning of the year. Home sales and construction "flattened" in the Atlanta district.

Banking and Finance
Overall loan quality was "generally holding steady" in the Atlanta district and "good" in the Chicago district, with little change in credit standards. A few banks tightened their lending standards in the Kansas City district, citing concerns over credit quality. Contacts expressed concern about an oversupply of loanable funds in the Dallas district, but delinquency rates had not increased.

The Chicago, Cleveland, Dallas, San Francisco and St. Louis districts reported stiff competition for borrowers, particularly for commercial loans. Competition encouraged lower interest rates and a relaxing of credit requirements in the Chicago, Dallas and St. Louis districts and "ongoing efficiency-driven consolidation" in the San Francisco district.

Consumer lending was up in the Atlanta and Philadelphia districts, but was reported to be flat in the Richmond district, and has softened somewhat in the Cleveland and St. Louis districts. The Chicago district reported slower credit card usage but continued high delinquencies. Credit card loan charge-offs continued to rise in the Philadelphia district. The Cleveland and New York districts reported tighter standards on consumer loans and a decline in delinquencies, but in the Cleveland district "several bankers continue to note a rise in bankruptcies."

Labor Markets
Labor markets tightened in the Chicago, Cleveland, Dallas, Richmond and San Francisco districts. Continuing labor shortages were reported in the Atlanta, Boston, Kansas City, Minneapolis and St. Louis districts. Tight labor markets were still reported for skilled professionals in the high-tech, construction and energy industries. The Atlanta, Chicago, Dallas, Kansas City, Minneapolis and San Francisco districts noted greater difficulties finding skilled blue-collar and entry-level workers.

Most districts reported little or no wage pressure or noted that pressures were confined to a few markets. At some temporary-employment firms in the Cleveland district, however, the growing number of marginally qualified workers has translated into higher training and screening costs. The pressure to raise wages increased in the Dallas, Minneapolis and St. Louis districts. The Minneapolis district reported "a continuing move to extend benefits to groups of workers previously not covered. One Wisconsin contractor reportedly paid full wages to an idle crew for three weeks between jobs, just to avoid losing them to competitors." In the St. Louis district, "Some firms are unable to meet higher demand because they are understaffed."

Prices for energy and for some metals and real estate rose, but few districts reported upward pressure on final goods prices. Several districts suggested that retail and manufacturing prices were being held in check by heavy competition, which was stimulating continued cost reduction or productivity increases.

The Dallas district reported higher prices for oil, gasoline, natural gas and heating oil. Most steel producers in the Chicago district were successful in pushing through moderate price increases recently. Scrap metal prices were down in the Dallas district, although there was some feeling that this was a result of customers' building too much inventory, and therefore only temporary. In the San Francisco district, the metal industry reported aluminum mill operations at 90�95 percent capacity, with prices escalating for certain materials in short supply. The Dallas and Minneapolis districts reported higher chemicals and plastics prices. Philadelphia reported scattered rising input prices, mainly in the nondurable goods sectors.

A few districts noted higher housing, construction or land prices. Housing prices were up in the Boston district, and there were sharp rises in New York City co-op and condo prices and hotel rates. Office rents were up 20 percent over year-earlier levels in the Dallas district, and land prices were rising for industrial and office locations. The Kansas City and San Francisco districts reported increasing construction costs. The Cleveland and Chicago districts reported strong increases in farmland values.

Agriculture and Natural Resources
Excess moisture in the Cleveland, Dallas, Minneapolis and St. Louis districts slowed fieldwork and led to some replanting, while dry conditions slowed planting activity and crop development in the Chicago and Richmond districts. Planting and growth of crops were also hampered by cool weather in the Chicago, Richmond and St. Louis districts. Several districts reported improving livestock and pasture conditions, and growing demand for cattle and lower grain prices. The San Francisco district reported weak demand for the Idaho potato.

The Dallas, Kansas City and Minneapolis districts reported that energy industry activity was strong or improving. Dallas reported that, at current energy prices, cash flow is strong at oil service companies and the return on investment is "phenomenal," creating a rush to get wells drilled. Bottlenecks continued to be created, however, by shortages of key personnel, such as machinists, engineers, ship captains and crews, as well as of drill pipe and many types of equipment. The Minneapolis district reported that iron mining production was strong, and forest production was "steady."

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Last update: June 18, 1997