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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of Boston and based on information collected before September 8, 1997. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.

Economic activity expanded in July and August in all twelve Federal Reserve Districts. Although some Districts note signs of slowing in selected sectors, about half the Districts say their region's overall pace picked up in July and August while the others report continued moderate growth. Retail results range from "mixed" to growing at a "solid clip." Manufacturers report generally rising orders and revenues, with durables manufacturing especially strong. Residential and commercial real estate markets are mostly improving, although the level of new construction activity varies widely. While most energy suppliers are seeing improvements, other natural resource industries and agriculture show considerable variability as a result of weather and other factors.

Most regions are experiencing tight labor markets, recruiting difficulties, or growing labor shortages. Two-thirds of the Districts, however, report that these supply-demand imbalances are not translating into generally higher wages, although wages may be rising faster in selected industries, occupations, firms, or localities. Several Districts note that firms are using creative recruiting or compensation techniques to reduce the pressure on wages. With a few exceptions, prices for goods are said to be moving very little, if at all, at the manufacturing level for inputs or finished goods, and at the retail level.

Consumer Spending
Most Districts report that retail sales are growing at a fairly moderate pace. Exceptions are the Minneapolis and San Francisco Districts, which report very strong sales growth. Only the Richmond District says that sales growth has slowed, albeit from a brisk to a more moderate pace.

Districts reporting unanticipated increases in sales activity are Chicago and Dallas. In most Districts, inventories are at desired levels. However, Chicago reports lower inventories due to a weather-related increase in sales, while Richmond reports inventory accumulation as a result of moderating sales growth.

Sales of apparel, other back-to-school items, and tourism are said to be very strong in most Districts. In addition, the St. Louis and San Francisco Districts say that sportswear and sporting goods sales are strong, while Boston, New York, and Cleveland cite strength in home furnishing sales. Sales of appliances and other consumer durables are mixed, with almost half the Districts (Boston, Richmond, St. Louis, Minneapolis, and San Francisco) reporting weak sales results, but New York and Cleveland experiencing strong sales. Although San Francisco reports generally solid retail sales growth in the District, softness is noted in Utah's retail and tourism businesses.

All Districts report tight labor markets and difficulty attracting and keeping retail employees. Nonetheless, most Districts say that wages are either holding steady or rising only moderately. Only the Richmond District notes sharp wage increases in the retail sector. There is little evidence of price pressures at the retail level; in most Districts, both consumer and vendor prices are stable. Only Dallas and New York say that consumer prices are rising, albeit slowly.

Manufacturing activity is reported to be at a high level and rising moderately throughout much of the nation. Richmond, Chicago, Minneapolis, and Dallas note that business was accelerating or exceeding expectations. The most restrained commentary comes from Cleveland, where production has moderated but conditions remain "good or better," and Atlanta, which indicates only "slight" improvements in manufacturing activity. Most other Districts cite steady growth in shipments or orders.

Durables manufacturers appear to be doing particularly well; Districts typically cite strong or accelerating demand for computers and other business equipment, metals, machine tools, aircraft, and heavy equipment. Steel mills, in particular, are said to be struggling to build inventories to meet strong demand from such sectors as construction, oil and gas, and machinery. According to Chicago, light vehicle production will be higher this quarter than last (in part to rebuild stocks depleted during labor stoppages) and order backlogs are increasing for heavy trucks. Several Districts indicate growing sales of furniture and lumber, although San Francisco notes that declining foreign demand and rising imports had a depressing effect on sales and prices of wood and lumber products in that District.

Nondurables manufacturing results are mixed. Oil refineries were operating at record high levels of capacity utilization this summer, according to Dallas. However, Atlanta and St. Louis note layoffs in the apparel industry, and Minneapolis and Dallas mention sluggish conditions in food processing.

Several Districts report that the United Parcel Service strike created temporary disruptions, and rail shipments have been a problem in the Dallas District. Otherwise, there are no indications of unusual delivery lags.

In general, materials cost pressures are described as modest, although several Districts indicate that manufacturers are paying higher prices for metals and packaging. Output prices largely remain in check, with Chicago and San Francisco noting a heightening of competitive pressures as a result of the appreciation in the value of the dollar.

Reports of tight labor markets are widespread, but manufacturers appear to be facing only selective hiring bottlenecks or pay pressures. Boston, Atlanta, Minneapolis, Kansas City, and San Francisco report stiff competition or accelerating compensation for workers in technical and other specialized occupations. Kansas City manufacturers were also experiencing difficulties hiring production workers. Only Richmond indicates generalized wage acceleration and hiring concerns among manufacturers, while Cleveland exemplifies the other extreme, citing "no significant labor shortages or wage increases."

Real Estate and Construction
Most Districts report moderate activity in residential real estate markets. A modest increase in sales of existing homes is cited by Boston, New York (upstate only), Richmond, Chicago, Dallas, and San Francisco (in southern California, Oregon, and Washington). However, Boston reports a decline in condominium sales, Chicago a drop in new home sales, and San Francisco a decline in the volume of sales in Utah. Philadelphia, Atlanta, and Kansas City indicate no notable changes in sales. Home prices remained relatively steady everywhere except for the Twelfth District, where large price increases are noted in California, Washington, and Alaska. Excess inventory of existing homes is reported by Philadelphia, Atlanta, and St. Louis.

Commercial real estate markets have been strong in most Districts that reported on this activity. Vacancy rates declined in New York, Philadelphia, Atlanta, Dallas, and San Francisco, with particularly strong office markets. Despite the declines in vacancy rates, almost no Districts note rising rents. Philadelphia reports a slight increase in rental rates but indicates that new construction could cause them to decrease. Rising commercial construction is reported by Philadelphia, Richmond, Atlanta, Minneapolis, and Dallas.

Banking and Finance
Overall lending activity rose in most Districts, with slow growth in Richmond and Philadelphia and moderate gains in New York, Dallas, and San Francisco. Among loan types, consumer lending softened in several Districts. Commercial loans and home mortgages account for most of the overall increase, although in Atlanta, Cleveland, and Philadelphia commercial lending continued flat or fell slightly.

Delinquency rates for both commercial and consumer loans continued stable to improved across the country. Several Districts report improved asset quality and some tightening in credit standards, although New York and Chicago note some apparent easing of standards for consumer credit and commercial mortgages, respectively.

A number of Districts mention continued strong competition among banks and other institutions, especially for commercial and industrial loans. Philadelphia bankers note ongoing competition from commercial finance and specialized small business lenders, while Dallas says that stiff competition is exerting pressure on loan rates. San Francisco and Kansas City report a drop in bank deposits, citing strength in equity markets.

Nonfinancial Services
Temporary employment firms and other service providers continue to expand in all Districts, with the exception of Richmond, where service-sector revenue growth eased slightly. Those Districts contacting temporary employment or staffing agencies indicate that labor markets tightened further. Many Districts report strong competition for highly skilled workers, especially those in computer-related fields. Temporary employment agencies in the Cleveland District describe high demand for clerical and light industrial laborers, and some San Francisco services respondents note a tightening market for entry-level workers. Boston, Cleveland, Dallas, and Richmond report wage increases in the service sector as demand continues to outpace supply.

Agriculture and Natural Resources
Although recent rains have improved crop conditions in some areas, hot dry weather earlier in the year reportedly reduced the corn, soybean, hay, and fruit crops in parts of the Cleveland, Richmond, St. Louis, and Chicago Districts. However, in Minneapolis, Kansas City, and Dallas, where yields have been relatively good, producers are benefiting from favorable corn and soybean prices. Prospects for the cotton crop have improved in St. Louis and are good in Dallas, while the winter wheat harvest is likely to exceed 1996 levels in Cleveland but to be no more than average in Minneapolis. Richmond, Minneapolis, Kansas City, Dallas, and San Francisco all report strong demand and favorable price conditions for poultry and livestock products. Benefiting from good pasture and good prices, Minneapolis and Kansas City ranchers are reportedly building breeding herds or holding calves until the spring of 1998. Contacts also note growing exports of pork and of beef to Mexico and Southeast Asia.

Reports on the oil sector indicate that continued strong demand for energy products has led to price increases, good profits, and a resurgence in oil and gas exploration activities. In the Minneapolis, Kansas City, and Dallas Districts, rig counts are at their highest levels in years. While prices remain below their late 1996 levels, supplies are currently tight; however, seasonal declines in gasoline prices are expected soon, and mild weather damped down energy prices in the San Francisco District. Contacts in Atlanta note that the resurgence of the energy sector along the Gulf Coast has produced strong demand for geoscientists and petroleum engineers, while some Dallas contacts believe that a shortage of experienced crews may limit future drilling activity.

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Last update: September 17, 1997