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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of Richmond and based on information collected before July 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.

Economic activity generally expanded at a moderate rate in many districts in June and July, although several reported that growth was more brisk. The tempo of consumer spending picked up since the last Beige Book report, aided in part by improved weather. Automobile sales, however, were slightly softer. Manufacturing remained at a high level or expanded further across most industries, particularly for nonautomotive durables. Most districts indicated that manufacturers' inventories remained at generally desirable levels. Commercial real estate activity strengthened across much of the country as vacancy rates declined further and rents rose. Home sales and construction increased modestly in recent weeks, but still lagged slightly below year-ago levels. Labor markets tightened further but only scattered wage pressures were noted. Prices for most goods were stable, although reports indicated that lumber and some agricultural prices rose. Recent rains in some districts brought relief to crops damaged by heat and sparse rainfall. Several districts indicated that commercial lending strengthened while reports on consumer lending were more mixed.

Consumer Spending
Most districts reported stronger retail sales since the last report; only Kansas City had weaker activity. July's sales were noticeably stronger in New York, Richmond, and Minneapolis, with descriptions of sales ranging from "well above plan" to "vigorous." Philadelphia, Atlanta, and San Francisco, however, reported more modest improvements. Dallas indicated that consumer expenditures were mixed across that district.

Some districts attributed a rebound in sales growth to the arrival of warmer weather. However, New York stated that increased sales were not limited to seasonal items. Minneapolis reported that sales had increased, in part because some consumers had to replace flood-damaged belongings. Apparel demand appeared stronger in many districts, with Boston, New York, and Chicago citing particular strength in sales of women's fashions. However, Cleveland characterized the demand for children's apparel as soft, and Boston had weak sales of men's clothing. Consumer purchases of big-ticket items increased in New York, Richmond, and Chicago. Chicago also noted that sales of some luxury items were up "noticeably" from a year ago, particularly of personal watercraft and all-terrain vehicles. In most districts, vehicle sales edged lower; sales of light trucks and sport utility vehicles continued to display considerable strength, but sales of domestic passenger cars softened.

Retail inventories were in line with sales across most districts. New York, Philadelphia, Cleveland, Atlanta, and Chicago reported that retailers' inventories were on target. Kansas City said that retailers there had trimmed inventories and did not believe further reductions were necessary.

Tourism continued to strengthen in much of the country. Hotel occupancy rates were generally described as very high. Atlanta noted that the luxury hotel segment continued to post strong growth, and that hotels in Florida enjoyed high occupancy rates despite not offering normal off-season discounts. Philadelphia noted increased business travel and a greater number of summer vacationers. Minneapolis, however, indicated that visits to national parks were "on the soft side," while San Francisco said that vacation traffic was weak in Hawaii but normal elsewhere.

Many districts reported that there was further expansion in manufacturing activity. Production picked up in the Boston, Philadelphia, Cleveland, Chicago, and Dallas districts, and continued at moderately high levels in the Richmond, Kansas City, and San Francisco districts. New York reported moderate growth in manufacturing, while Minneapolis noted that growth there was "solid, but not spectacular." Atlanta described growth as mixed.

Production rose for aircraft and related products in the Boston district, but a shortage of skilled labor slowed aircraft production in the San Francisco district. Atlanta noted strength in shipbuilding. Chicago indicated that steel producers and manufacturers of heavy equipment continued to see increased production and strong orders. In the Cleveland district, however, demand for steel moderated, and in Philadelphia's district, primary metal producers faced slackening demand. Weaker demand for textiles reduced production in the Richmond and Philadelphia districts, while continued softness in apparel demand forced further plant closings in the Atlanta district. Furniture manufacturers in the Richmond district reported weaker product demand. The Philadelphia and Dallas districts noted greater demand for construction and building products.

Few inventory problems were noted. Philadelphia and Kansas City reported that stocks of manufactured goods had been trimmed slightly, and further reductions were anticipated by Kansas City. Inventories in the Cleveland district were only slightly higher than earlier in the year.

Construction and Real Estate
Residential real estate activity was reported to be higher in some districts, but mixed in others. Chicago noted an increase in sales of existing homes in June, but indicated that year-to-date sales continued to lag. Contacts in the Dallas district reported increases in home sales and housing construction, particularly for more affordable homes. Housing starts edged lower in the Kansas City district and were generally unchanged from a year ago. Reports on residential permits were mixed; St. Louis and New York noted increases while Chicago reported that building permits were below those of a year ago.

Most districts reported strong commercial real estate activity, with declining vacancy rates and vigorous construction. Several districts also reported rising rents, from "modestly" in New York, to "sharply" in Boston. Richmond, St. Louis, and San Francisco reported strong nonresidential construction activity, as did Atlanta, although a lack of suitable land there was slowing industrial development. In the Chicago district, some areas experienced "record levels of activity," and Cleveland reported that "commercial building improved from the spring."

Labor Markets
Labor markets strengthened during June and July. Boston, Cleveland, Richmond, Atlanta, Chicago, St. Louis, and San Francisco reported tight labor markets and shortages of skilled workers. Most manufacturers in the Boston district described the pool of available labor as adequate, but Chicago and San Francisco indicated that labor shortages had curbed production in those districts. Finding employees with adequate computer skills prompted some employment agencies in the Cleveland and Richmond districts to offer in-house training. Employees for entry-level and retail positions were increasingly difficult to find and retain in the Cleveland, Chicago, St. Louis, and Kansas City districts.

Despite the persistent labor market tightness, wage pressures remained generally subdued. Exceptions included Richmond, where retail wages surged in July, and Chicago and Kansas City, with intensifying wage pressures for low-paying, entry-level, and clerical positions. Minneapolis described increased wage pressures accompanied by higher benefits costs. In the Boston district, employers were enhancing compensation packages and offering up-front bonuses to attract job candidates. Dallas reported that more employers were offering nonpecuniary forms of compensation instead of raising wages.

Overall prices were stable, and contacts in many areas attributed their inability to raise prices to competitive pressures. Boston, New York, Philadelphia, Atlanta, Chicago, and Kansas City generally reported that prices remained steady; Cleveland saw only modest increases. Minneapolis noted that product prices for intermediate and final goods remained "quiescent." Several districts did refer to price movements in agriculture and energy. Minneapolis reported higher hay, cattle, and hog prices, and Dallas noted that lumber prices were up. Minneapolis, Kansas City, and Dallas indicated that gasoline and crude oil prices were falling, and Kansas City noted lower wheat and fed cattle prices as well. San Francisco reported downward price pressure on meat and produce in grocery stores, although cattle prices there had "firmed further."

Agriculture and Natural Resources
Generally, crop conditions appeared to be in good shape, although warm, dry weather hampered crop development in several districts. Cleveland, Richmond, Chicago, St. Louis, and San Francisco reported that below normal rainfall caused some deterioration in crops. Recent rains, however, brought relief to farmers in the Richmond and Chicago districts. Chicago noted that the rains came at a critical time for pollination, and Richmond suggested that while it may be too late for some crops, the rains would prove beneficial on balance. Elsewhere, dry weather helped crop development in Texas and promoted fruit and nut yields in California.

Livestock remained in good condition, and beef and hog producers enjoyed higher prices. Kansas City reported that many producers were marketing cattle early to head off further price declines, and that hog producers were expanding their operations. In Minneapolis, output from beef and hog producers was steady.

Energy activity continued to improve, with Minneapolis stating that, because of new rigs coming on line, oil and gas exploration in that district was at its highest level in more than a decade. Kansas City reported that the rig count was well above a year ago, while Dallas noted that the rig count there had leveled off.

San Francisco indicated that logging operations continued to expand at a "good clip." In sharp contrast, Minneapolis reported a noticeable decrease in Montana's production of forest products. Iron and steel production in that district also showed signs of falling off, but this was attributed to structural changes rather than weaker demand.

Banking and Finance
Overall lending activity was mixed across districts. Commercial lending increased in several areas of the country. Cleveland, Richmond, Atlanta, and Chicago reported that commercial loan demand remained strong. Consumer lending was higher in Philadelphia and Cleveland, flat in Chicago, and down in the St. Louis district. Both Philadelphia and Chicago noted some increases in home equity lending. Residential mortgage demand was described as higher in the Richmond district, stable in the New York district, and relatively flat in the Atlanta district.

Delinquency rates fell somewhat in several districts. New York and Philadelphia reported that delinquency rates continued to decline for most types of loans. Delinquencies remained low in the Dallas district, especially in consumer lending. However, Cleveland reported a slight increase in consumer delinquencies. Cleveland and Kansas City reported tightening of credit standards, as some bankers cited concerns over credit quality.

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Last update: August 6, 1997