December 9, 1998
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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.
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.
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.
Construction and Real Estate
Banking and Finance
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.
Agriculture and Natural Resources
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.