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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 December 1, 1998. 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.

The information collected for these district reports suggests that all twelve district economies continued to expand in November, despite contraction in export industries. The rate of economic expansion slowed in the Atlanta, Boston, Dallas, Kansas City and St. Louis Districts, was unchanged in the Chicago, Minneapolis, Richmond and San Francisco Districts, and growth strengthened in the New York District.

Consumer spending was up, but several districts said sales were weaker than expected. Manufacturing activity was generally softer, mostly due to output declines in export-related industries. Several districts noted that some manufacturers were expecting further reductions in output. Overall, construction activity increased. Stronger consumer confidence and lower interest rates spurred homebuilding, refinancing, and a rebound in commercial construction activity in some areas. Loan demand was strong in most districts, but bankers reported generally tightened credit standards. Low prices and weak exports continued to hammer the natural resource and agricultural industries. Several districts noted sizable losses incurred by many agricultural producers.

Labor markets remained tight in nearly all districts, but reports suggest that wage pressures have subsided somewhat. Generally, prices of goods were reported to be steady or falling in nearly all districts, although there were scattered reports of higher prices.

Consumer Spending
Retail sales increased in most districts, but the tone of these sales reports was mixed. Strong sales were reported in the Kansas City, Minneapolis, New York and Richmond Districts, but most districts referred to sales growth as modest, good or rebounding. Atlanta said retail sales were generally flat, while Boston said sales growth was positive but clearly slowing. Sales of seasonal merchandise and traditional gift items, such as toys, have been the strongest. Some districts noted that heavy homebuilding boosted sales of furniture and home goods.

Several districts said sales were weaker than retailers expected. Although a couple of districts noted that some contacts were concerned that consumers might be pulling back, most retailers blamed the unseasonably warm weather, which reduced demand for winter apparel and other products. A particular exception was the Minneapolis District, where retailers said the warm weather was stimulating overall sales.

Auto sales were reported to be strong or increasing in the Chicago, Dallas, Kansas City, Minneapolis, Philadelphia, and St. Louis Districts. The Cleveland District, however, said auto sales slowed significantly from their robust summer pace, and dealers were reporting full-to-heavy inventory levels. A few districts said dealers had increased the use of sales incentives and rebates to stimulate sales.

Manufacturing activity generally softened, with output declines reported in export-related industries. The Chicago, Cleveland, Dallas, Philadelphia, St. Louis and San Francisco Districts reported weaker manufacturing activity than in the last beige book. The Kansas City and Minneapolis Districts reported unchanged activity, but Richmond reported that manufacturing had rebounded in that District.

Industries that were mentioned as cutting back production include agricultural equipment, apparel, chemicals, energy-related equipment, lumber, paper, some high-tech products, and primary metals—particularly steel. There were areas of strength, however. Production of automotive and aircraft parts, construction-related products, furniture and some high-tech products were mentioned as expanding or strong. While production of and new orders for heavy trucks were strong in the Chicago District, there were reports of canceled orders, some with substantial down payments. There was a small rebound for semiconductor firms in the Cleveland District, although business has remained significantly below last year's levels. Tobacco and textile firms in the Richmond District were trimming their workforce levels.

San Francisco noted an acceleration in the demand for numerous services, while Dallas and Richmond reported a general deceleration. Transportation firms reported that shipments were up in the Dallas, St. Louis and San Francisco Districts. Demand for temporary-service employees was strong in the Cleveland and Richmond Districts and had rebounded from a third quarter drop in the Boston and Dallas Districts. The tourist season was one of the best in recent years in the Minneapolis District, and tourism was boosted by fair weather in the Richmond District. Tourism is moderating in the Boston District. Atlanta reports that tourism has been hard hit in Florida and attributes the decline to fewer visitors from Latin America.

Construction and Real Estate
Overall, construction activity increased in November. Most districts reported that housing markets and home building remained strong or had strengthened since the last report. Commercial construction activity rebounded in several districts, which contacts attributed to lower interest rates and improved consumer confidence. There were reports that lenders had increased interest rates and credit standards for commercial projects, which hampered commercial markets in some areas, although new projects were still going forward.

Banking and Finance
Low interest rates were stimulating loan demand in most districts, but bankers had generally tightened standards and credit terms. The demand for loans was strong or increasing in the Chicago, New York, Richmond, St. Louis and San Francisco Districts. In contrast, loan growth had slowed in the Minneapolis District, and Cleveland said that loan demand was soft. Several districts said residential mortgage and refinancing activity was strong or increasing, but noted a slippage in the credit quality of agricultural loans.

Labor Markets
Labor markets remained tight in nearly all districts. An exception was San Francisco which noted that, in a change from previous survey periods, manufacturers did not report difficulty finding skilled employees. Reports suggest wage pressures have subsided somewhat in many districts, with the exception of the Atlanta District and for some types of workers in the Boston, Chicago and Dallas Districts.

Several regions mentioned that the retail industry was having great difficulty finding qualified workers, and wages had increased for these workers in a few markets. A shortage of construction workers was also mentioned by several districts. The Dallas District reported that some contacts in the high-tech sector had turned their focus to retaining workers rather than hiring, partly because firms are focusing more on expanding capital rather than labor. An Atlanta contact also noted that any capital investment made by the firm was to increase efficiency and decrease labor costs.

Generally, prices of goods were reported to be steady or falling in nearly all districts. Reports of falling prices were prevalent in the manufacturing sector, with districts mentioning lumber, paper, petrochemicals, plastics, textiles, steel, and automotive and aircraft parts. Prices for some of these products are expected to decline further. Unseasonably warm weather in the United States contributed to falling energy prices and high inventories. Oil prices have fallen to their lowest nominal levels in more than a decade. Agricultural prices are also low, with the exception of milk. There were a few reports of price increases, particularly for construction materials and in some real estate markets.

Agriculture and Natural Resources
Financial stress in the farm sector was reported by the Dallas, Chicago, Minneapolis, Kansas City and San Francisco Districts. Output reports were mixed, but regions with good production were hurt by low product prices. Hog prices are at their lowest levels in nearly 30 years, bringing large losses and some liquidations. A number of apple orchards in the Pacific Northwest went unpicked because prices were too low to cover production costs. High output and slow sales have resulted in a storage crunch in some areas, with large quantities of grain in temporary storage on the ground, although the Chicago District reports that the situation has not matched earlier concerns. St. Louis reports sharply slower demand for farm machinery and agricultural chemicals. The winter wheat crop was reported to be in good shape, but conditions remained dry in some areas.

The energy sector continued to decline, with falling drilling activity and a drop off in demand for oil field machinery and services. Drilling in the Kansas City District was down 10 percent in November, after falling 7 percent in October, while Dallas reports that drilling in Texas is down 38 percent from last year. Contacts in the Dallas District believe oil and gas producers are pulling back hard, in preparation for a prolonged period of low oil prices.

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Last update: December 9, 1998