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Prepared at the Federal Reserve Bank of Philadelphia based on information collected before April 27, 1998. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a comment on the views of Federal Reserve officials.
Reports from Federal Reserve Districts indicated that economic growth generally continued to be moderate to strong in March and April. Expansion was occurring in nearly all Districts, although Dallas reported some recent signs of slowing growth amid basically strong regional economic conditions and Minneapolis noted some weakening of business activity in parts of that District. Consumer spending was generally robust in all regions of the country. Manufacturing activity advanced. Real estate markets were generally strong. Agricultural conditions were mixed, as was lending activity. Activity has eased in oil drilling and mining.
Labor markets continued to be tight. There was some evidence of increased wage pressures in service industries and for computer and technical professionals. Despite increases in labor costs, business contacts indicated that competitive pressures were holding prices in check for most goods. Some increases in service prices were noted, however, in the Dallas and San Francisco Districts.
Retail sales rose generally throughout the country in April. In New York, Cleveland, Chicago, and Dallas the strength of the gain exceeded merchants' expectations. Increases were said to be more modest in Philadelphia and Richmond, and retailers in several Districts cautioned that the April results were probably boosted above trend by this year's late Easter. Spring apparel has been selling well in Boston, New York, Philadelphia, Atlanta, and Minneapolis. Healthy sales of home furnishings, furniture, and appliances were also cited by several Districts. Merchants said store inventories were in line with sales in Boston, New York, Cleveland, Atlanta, Chicago, and Kansas City, but some retailers in Richmond said inventories were at higher than desired levels, although they were not increasing.
In most of the Districts reporting on auto sales, demand has slipped. In Philadelphia, Chicago, Minneapolis, Kansas City, and San Francisco, sales of cars have softened in recent weeks. In contrast, Cleveland and Dallas reported recent increases in motor vehicle sales.
Spring tourism was described as very good in Richmond and Atlanta. Reservations for summer lodging were strong in coastal areas of the Richmond District, and Atlanta reported that cruise bookings were at an all time high in Miami. But the recently concluded winter tourism season in the Minneapolis District was called disappointing.
Manufacturing activity continued to expand. In March and April, strong gains were recorded in Chicago and Minneapolis. Activity grew in Boston, New York, Cleveland, Richmond, St. Louis, Kansas City, and San Francisco. Philadelphia, Atlanta, and Dallas also reported gains, but the rate of growth in those Districts has slowed from earlier in the year.
Manufacturing output has increased in a wide variety of industries. In particular, construction materials and home-related goods, such as furniture and appliances, were mentioned by several Districts. In contrast, output of electronic items was said to be down in Boston and Chicago, and chemical production fell in St. Louis and Dallas. Declining exports to Asia were cited as the main cause of weakness in these industries. Richmond noted falling exports of machinery. Increased competition from imports was reported by manufacturers of metals in Philadelphia and chemical manufacturers in Cleveland.
Real Estate and Construction
All Districts reporting on commercial real estate markets described improvement. For office buildings, rents were rising, vacancy rates were falling, and construction activity was rising. Boston and Richmond reported speculative construction in areas around Boston and the District of Columbia, respectively. New York City office rental costs have increased markedly since the beginning of the year. Besides these Districts, increases in office occupancy and construction were reported from Cleveland, St. Louis, Minneapolis, Dallas, and Atlanta. However, Atlanta also noted that vacancy rates in the industrial sector have risen slightly. San Francisco noted increased construction in Alaska for highways and oil-development infrastructure.
Demand for housing was on the rise in seven of the eight Districts that obtained information on this sector. Home construction was increasing in April in New York, Cleveland, Chicago, St. Louis, Minneapolis, and Kansas City. Sales of new and existing homes were up in Richmond, as were home prices. Real estate contacts in several Districts were wary that recent warm weather has encouraged home buying earlier this year than normal and that sales could slip later. Perhaps as a harbinger of this trend, home sales in Atlanta fell in April after an increase in March.
Agricultural conditions were mixed, as favorable developments for some crops were offset by weakness in livestock markets. The winter wheat crop was said to be in good condition in the Cleveland, St. Louis, and Kansas City Districts; however, St. Louis noted some damage to the peach crop because of freezing conditions earlier this season. Spring field preparation and planting was ahead of schedule in Cleveland, on schedule in Richmond and Dallas, but behind schedule in Chicago, St. Louis, and Kansas City because of wet ground. Wet conditions have also delayed planting of cotton and some other crops in the San Francisco District.
Low livestock and feed grain prices have seriously impaired farm income in the Minneapolis District, and a fall in hog prices in Kansas City has led to some liquidation of herds. Livestock sales and prices were said to be waning in San Francisco also, although Chicago reported some firming of feed cattle prices in April.
Natural Resource Industries
Oil-drilling activity has declined recently in the three Districts that reported on it: Minneapolis, Kansas City, and Dallas. Dallas did note, however, that drilling for gas remains active, although below the strong level recorded near the end of last year. Minneapolis noted that mining operations for most minerals have been reduced because of low prices.
Financial Services and Credit
Most of the Districts reporting on loan demand indicated that commercial lending was rising and residential mortgage activity was up, but consumer loan demand had slipped recently. Six Districts were recording increases in bank lending to businesses while one District, Cleveland, said business borrowing was flat. The increases in commercial and industrial loans were posted in Philadelphia, Richmond, Chicago, St. Louis, Kansas City, and San Francisco. Mortgage originations, both new and refinancings, were up in all of the Districts that mentioned real estate lending: New York, Philadelphia, Richmond, Atlanta, Chicago, Kansas City, and San Francisco.
Consumer lending varied. In recent weeks it was up in Atlanta and Chicago, down in Philadelphia, St. Louis, and Kansas City, and flat in New York and Cleveland. Despite these mixed results, bankers said the quality of their institutions' consumer loan portfolios was either steady (in Atlanta) or slightly improved (in Philadelphia, Cleveland, and Chicago).
Employment and Wages
Seven Districts obtained assessments of their overall labor markets from business contacts, and in all these, conditions were described as tight. Strong labor demand was noted in Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, and Dallas.
Wage increases in a variety of industries were estimated to be in a range of 2 to 6 percent above last year's levels according to surveys in Boston and Cleveland. Boston noted that computer professionals and engineers were getting wage increases of 8 to 10 percent, and Cleveland reported that temporary help firms were boosting wages by 5 to 20 percent.
Richmond and Dallas received reports that wage increases were becoming more frequent in service industries, but the increases were not sharp. In Atlanta and Chicago, wage gains were said to be more widespread, but the size of the increases was not great. Contacts in St. Louis said upward pressure on wages was growing.
Information obtained by most Districts suggests that goods prices at most stages of production are nearly steady. Retail prices were steady according to reports obtained by Boston, New York, Minneapolis, Kansas City, and Dallas. Prices for manufacturing inputs were said to be steady in Boston, Philadelphia, Cleveland, Minneapolis, and San Francisco. Some increases were noted in the Kansas City District, however, along with declines. As already noted, livestock prices were said to be weak in San Francisco and Minneapolis, and Minneapolis reported low prices for natural resource commodities. Oil prices also were reported to be low. One factor apparently keeping goods prices in check is import competition in intermediate and finished consumer products, primarily from Asian countries, as reported to New York, Philadelphia, Cleveland, Minneapolis, and Dallas. While the prices of most goods are nearly steady, growing construction activity has resulted in some price increases for construction materials, especially lumber. In contrast to the prices of goods, increases in the prices of business services were noted by Dallas and San Francisco.