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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of New York and based on information collected before November 24, 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.

On balance, Federal Reserve Districts report a continued moderate pace of economic growth since the last report. Non-auto retail sales improved in most regions. While a number of Districts report that sales were still a bit below plan, retailers are generally optimistic about the sales outlook. Inventories are deemed to be in good shape. Automobile sales continued to be sluggish, with inventories on the high side. Manufacturers report continued high levels of activity, with some constrained by capacity limitations; contacts in the West and South report continued shipping problems due to rail bottlenecks. Asian financial turmoil and currency weakness have adversely affected demand for manufactured and agricultural exports, and some Districts report increased competition from imports. Residential real estate markets are mixed, but commercial real estate markets continue to tighten in most areas.

Virtually all regions are experiencing tight labor markets, with some reporting increased wage pressures in specific industries and occupations with labor shortages. Retailers are having a particularly difficult time in hiring and retaining seasonal workers. More generally, businesses are using a variety of nonwage incentives to attract and retain workers. Business respondents report that price pressures remain neutral, on balance, as steady to declining commodity prices, productivity gains, and increasing overseas competition appear to be offsetting any effects of wage gains.

Consumer Spending
Most Districts report that retail sales have improved since the last report, buoyed by the late arrival of winter weather in the eastern half of the country. Boston, Minneapolis, Kansas City, Dallas, and San Francisco report steady improvement, while New York, Philadelphia, Cleveland, Richmond, Atlanta, and Chicago note a weather-related rebound from the sluggish performance indicated in the last report. Inventories are reported to be in good shape in all parts of the country, with retailers in most regions expressing optimism about the sales outlook for the holiday season. However, New York reports that consumers are budgeting less than last year for holiday spending, and Boston notes that some retailers are concerned about possible fallout from the Asian financial market turmoil.

Automobile sales generally remain soft, with a corresponding rise in inventories. Overall, sales of light motor vehicles were sluggish in Philadelphia, Cleveland, Chicago, St. Louis, and Kansas City, though the latter three Districts report strong demand for sport utility vehicles.

Manufacturers report high levels of capacity utilization, but a variety of supply and demand factors are constraining current output growth and future expansion plans. On the supply side, bottlenecks in rail shipments are cited by Atlanta, Dallas, and San Francisco; labor constraints are noted in Boston, Richmond, Atlanta, Minneapolis, and San Francisco. On the demand side, there is some concern about the fallout from Asian financial turmoil and currency weakness�with respect to both exports and competition from imports. Weakening Asian demand is noted in Boston, Philadelphia, Cleveland, Dallas, and San Francisco, while Atlanta reports that manufacturers have scaled back production levels in anticipation of softening sales to the Far East; on the other hand, Chicago notes that there has been no immediate impact from the events in Asia.

By industry, heavy equipment manufacturers and steel producers in Chicago and Dallas report strengthening demand. In contrast, demand for apparel, textiles and electronic equipment appears to be weakening in a number of Districts.

Construction and Real Estate
Commercial real estate markets continue to tighten, while residential markets are mixed but generally firm. Low and declining office vacancy rates have led to rising rents in New York, Philadelphia, and Atlanta, and have spurred increased construction in Philadelphia, Cleveland, Atlanta, Dallas, and San Francisco. Chicago, St. Louis, and Minneapolis report high, though not rising, levels of construction activity.

Residential real estate markets are reported to be fairly strong in most Districts, though some recent slowing is noted in Atlanta, Kansas City, and San Francisco. Boston and Philadelphia report that demand has been strongest for higher-end homes, but Dallas reports a shift toward more starter homes. Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco report brisk homebuilding activity. However, Boston and New York note low levels of construction, despite recent strength in the market.

Banking and Finance
Loan demand is mixed but stronger, on balance, with strength in commercial loans more than offsetting some softening in the consumer segment. Kansas City, however, reports a pickup in consumer lending, and strong growth in commercial loan demand is reported from Philadelphia, Cleveland, and Atlanta. The only Districts to note softer loan demand overall are New York and St. Louis. Delinquency rates were little changed, on balance�Philadelphia and San Francisco report some deterioration in credit quality but New York notes improvement. Intense competition for commercial and industrial lending is reported in a number of Districts: Philadelphia, Cleveland, Richmond, Dallas, and San Francisco.

Nonfinancial Services
Tourism, including business travel, continues to boom along the Eastern seaboard regions. Boston, New York, Richmond, and Atlanta report that tourism remains exceptionally strong, with Boston and New York noting a shortage of hotel rooms and rising rates. In contrast, Minneapolis reports that tourism is one of the few weak sectors of late.

A number of Districts indicate ongoing strength in business services. Boston and Dallas report continued solid growth in the temporary employment industry; St. Louis notes strength in the gaming industry and mortgage and insurance claim processing; Minneapolis reports that computer consulting firms are "swamped with orders"; San Francisco reports strength in telecommunications and business services.

Labor Markets, Wages and Prices
All regions report tight labor markets. Boston, Richmond, Atlanta, and Minneapolis specifically note shortages of technical computer workers and engineers. More generally, temporary employment agencies in Boston, Cleveland, Richmond, Atlanta, and Dallas report strong growth in labor demand.

Wage pressures have increased somewhat but are generally isolated to a few industries and occupations with severe labor shortages. Boston, Richmond, Dallas, and San Francisco report increasing labor demand in the financial services sector, with some reports of increased wage pressures. Retailers in almost all Districts are having particular trouble hiring and retaining workers for the busy holiday season. While some retailers in Boston and Minneapolis have hiked wages, certain stores in the New York and San Francisco Districts have resorted to offering nonwage incentives, such as bonuses and steeper in-store discounts.

More generally, businesses are dealing with labor shortages in a variety of ways. Some are tapping broader geographic labor markets: Atlanta reports that shipyards are recruiting from overseas; Chicago cites businesses recruiting in nearby rural areas or relocating to the inner-city. Cleveland reports that firms are offering increased benefits and more flexible work rules, while retailers and banks in the San Francisco District are converting part-time to full-time jobs.

Despite the increase in wage pressures, prices for goods remain flat, although there are scattered reports of price pressures in areas such as commercial real estate and hotel lodging. Businesses report that steady to declining commodity prices, increasing competition from overseas and productivity gains appear to be counteracting effects of wage gains on selling prices for goods. In particular, Dallas and San Francisco indicate that the strong dollar has lowered import prices, and Cleveland notes that increased steel imports have held prices down. Boston, New York, Cleveland, Atlanta, and Kansas City indicate that finished goods prices are steady or down slightly, while Richmond reports modest increases.

Agriculture and Natural Resources
Favorable crop conditions are reported from most agriculture-intensive Districts� Cleveland, Minneapolis, Kansas City, Dallas, and San Francisco. However, heavy rain caused delays in fall planting and harvesting of wheat, barley and oats in Richmond and cotton in St. Louis. Rail disruptions were reported to be minimal in the St. Louis District, but some problems related to the handling and storage of perishable crops were cited by San Francisco. Minneapolis reports that grain producers in North Dakota have been hurt by severe plant disease problems. Livestock conditions are also said to be generally favorable in Richmond, Minneapolis, Kansas City, Dallas, and San Francisco. Only San Francisco and St. Louis indicate some adverse impact from the Asian currency crisis on agricultural export demand.

Dallas reports "extremely high levels" of activity and labor shortages in the oil services sector, while Minneapolis notes a boom in gas and oil development. Kansas City reports that energy-sector activity has recently declined but remains above year-ago levels.

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Last update: December 3, 1997