August 9, 2000 Summary

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Prepared at the Federal Reserve Bank of Dallas and based on information collected before July 31, 2000. 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 reports suggests that economic activity in all Federal Reserve Districts continued to expand in June and July, but there were additional signs that the expansion was moderating in some sectors and the majority of Districts. Seven Districts--Atlanta, Boston, Chicago, Dallas, New York, Richmond, and San Francisco--reported slowing economic growth. The Cleveland, Kansas City, Minneapolis, and Philadelphia Districts reported basically no change in the growth rates, and the St. Louis District reported accelerating economic growth. District reports suggest consumer spending, manufacturing, and construction were slightly softer than in the last report. Easing demand appears to be restraining price increases. Energy prices remain high but may have peaked, and reports suggest that most of the indirect costs of rising energy prices have been absorbed by final goods producers for the time being. Labor markets continue to be very tight, and there are indications that the shortage of workers is limiting growth of activity in some areas. Many Districts reported wage increases and the growing use of benefits. Consumer Spending Reports of softness in consumer spending are more prevalent than in the last Beige Book. Most Districts reported that retail sales growth was unchanged or lower, but the Kansas City District reported a pick up in retail sales in June and July. Retailers in the Atlanta, Boston, Dallas, and New York Districts indicated that sales were below plan. Sales of apparel and seasonal items were noted as areas of weakness, while areas of strength included electronics, household goods, furniture, and jewelry. Reports do not generally suggest a problem with excess inventories, although the New York District reported excess inventories of summer wear and air conditioners. Vehicle sales slowed in the Dallas, Chicago, Cleveland, Philadelphia, Richmond, and San Francisco Districts, as well as rural parts of the Kansas City District. The Philadelphia District said dealer inventories had increased slightly. In contrast, the St. Louis District reported that auto sales had rebounded from a slow start this year. Manufacturing District reports from manufacturers were mixed but suggest slowing since the last Beige Book. Four Districts--Cleveland, Chicago, Dallas, and Richmond--reported that manufacturing activity fell or grew more slowly, while activity was unchanged in four Districts--Kansas City, Minneapolis, Philadelphia, and San Francisco. However, manufacturing activity grew in the Boston, New York, and St. Louis Districts. Atlanta reported mixed conditions. Sales of construction equipment and inputs remained strong in some Districts, such as Boston and Cleveland, but slowed in other Districts. Demand has softened for some durable goods, such as heavy equipment, agricultural equipment, lumber, and metals. Paper producers in the Dallas District reported weaker demand, including a significant drop in demand for boxes and packing paper. In contrast, the San Francisco District reported strong sales of wood pulp and paper products. Semiconductors, computers, and other high-tech equipment continued to be in high demand, as were some nondurables, such as food. Services Demand for services remained high in the Districts reporting on that sector. Tourism was strong in the Atlanta, Minneapolis, Philadelphia, Richmond, and San Francisco Districts. Transportation firms in the Dallas, Cleveland, and San Francisco Districts also reported strong or increased business. Contacts in both the transportation and tourism industries noted that higher fuel prices did not appear to be restraining demand. Firms employing temporary workers in the Richmond and Dallas Districts reported continued strong demand for their services. Temporary employment firms in the Dallas District said growth was restrained by their inability to hire workers. Construction and Real Estate Home building and real estate activity slowed in most Districts, but several noted that activity continued at high levels. Nine Districts reported slower residential construction--Atlanta, Chicago, Cleveland, Kansas City, Minneapolis, New York, Richmond, St. Louis, and San Francisco. Sales of existing homes were weaker in six Districts--Atlanta, Boston, Chicago, New York, Richmond, and St. Louis. Commercial construction activity grew at a slower pace in Chicago and San Francisco, but continued to be brisk in the Atlanta, Cleveland, Dallas, Kansas City, Minneapolis, and Richmond Districts. Lenders in the Atlanta District are becoming more cautious and are requiring a higher level of pre-leasing. Contacts in the Dallas District complained that lenders are restraining construction funding because they fear overbuilding. Banking and Finance Loan demand remained strong or "solid" in most Districts, although several banks reported areas of slowing loan demand. Demand for real estate loans or mortgage refinancing slowed or fell in the Atlanta, Chicago, Cleveland, Kansas City, Philadelphia, New York, and Richmond Districts. Consumer lending was weaker or fell in the Cleveland, Kansas City, and St. Louis Districts. Growth in business loans was slower in the Philadelphia District, while the Richmond District reported fewer commercial loans in the "pipeline." Banks in the Kansas City, Philadelphia, and St. Louis Districts reported difficulty obtaining deposits. In the St. Louis District, the lack of deposit growth continues to be the biggest challenge facing banks, and many have turned to Federal Home Loan Banks to obtain funds to meet loan demand. The Philadelphia District reports that bankers are facing growing competition for personal accounts from brokerage firms and mutual funds. A few banks noted an increase in concerns about credit quality. Bankers in the Kansas City, New York, Philadelphia, and San Francisco Districts mentioned tighter credit standards. Commercial lenders in the Richmond District said they were taking a closer look at the creditworthiness of borrowers in cyclical industries. Some bankers in the Chicago District noted a slight "step back" in loan quality, although they stressed that overall loan quality remained high. The Atlanta, Dallas, and Cleveland Districts reported no change in credit quality. The San Francisco District reported that contacts in Washington State say Internet retailers are having more difficulty accessing venture capital; it was reportedly more difficult to obtain financing for large and unproven businesses, while quality small and medium-sized borrowers had no difficulty obtaining loans. Agriculture and Natural Resources Agricultural production has been mostly favorable according to the Chicago, Cleveland, Kansas City, Minneapolis, Richmond, St. Louis, and San Francisco Districts. Yields are expected to be above average in many areas. Still, agricultural conditions are uneven, and in parts of the country it has been feast or famine with rainfall. Several Districts reported areas of severe drought, while in a few other areas excess rainfall has been a problem. For many crops, the expectation of bumper yields has pushed down prices, and the Dallas and Cleveland Districts say many farmers expect low or no profit for the year. Livestock producers are in better shape as beef and hog prices have increased while low crop prices have reduced feed costs. Energy activity expanded in the Districts reporting on the sector. Exploration and development of oil and natural gas increased in the Atlanta, Dallas, Kansas City, and Minneapolis Districts. The Dallas District reported that natural gas is still the main driver for drilling activity in the United States, but oil-directed activity has begun to pick up for the first time since U.S. drilling activity turned around 16 months ago. Weak international drilling is putting downward pressure on pricing for some oil field products and drilling services, however. Minneapolis reported that the iron ore and platinum industries continue to operate near capacity. Labor Markets Nearly all Districts reported that labor markets remain very tight, and the labor shortage has become more severe in the Boston and Kansas City Districts. Difficulty obtaining workers was restraining employment growth in the Atlanta, Dallas, Richmond, and St. Louis Districts. The shortage of workers is reported across all types of industries, including manufacturing, services, transportation, construction, energy extraction, and information technology. Several Districts mentioned difficulty obtaining retail workers. A retailer in the Richmond District said it is a challenge to find reliable employees, adding that some "employees just don't show up for work." A Dallas District retailer said the lack of employee experience is hurting sales. A staffing service contact in the Chicago area said that meeting its customers' needs for workers was "like torture." Most Districts said wages, benefits, or incentives were growing and becoming more creative. Signing bonuses are becoming larger for both skilled and unskilled workers at many firms in the St. Louis District, and some fast food chains are offering free meals, regular pay raises, paid training, and profit sharing. The San Francisco District reported that there were few instances in which wage increases were outstripping productivity gains but there had been a pickup in benefit costs. A grocery store chain in the Dallas District has addressed advertisements to parents suggesting that they encourage their children to become employees because the chain offers good pay, flexible hours, and extensive benefits, including college tuition. Prices Manufacturers and retailers say input costs have risen, particularly for energy, transportation, and products linked to oil. The Boston, Dallas, Philadelphia, and San Francisco Districts report, however, that in most instances these price increases are not being passed along to customers, partly because of competitive pressures. The Boston District says offsetting cost savings and productivity increases are mitigating price pressures. Some companies cite examples of negotiating volume discounts with their suppliers, making expanded use of electronic purchasing, or shifting production to foreign locations. Price pressures from the energy industry appear to have pulled back some, as the Dallas District reported that the steam has generally come out of energy prices. Prices for crude oil, natural gas, and retail and wholesale gasoline peaked in June and July. Despite some increase in input cost pressures, all Districts reporting on the retail industry said selling prices were unchanged or lower, with the exception of the Richmond District. Retailers in the New York District were surprised that shipping costs had not increased, or at least not significantly. The Chicago and New York Districts said retailers were doing more promotions and price discounting. The Chicago District noted that an increase in inventories had led the auto industry to increase incentive spending. The Cleveland and Dallas Districts reported a drop in steel prices, with the Cleveland District explaining that steel prices have fallen to their first-quarter levels; producers cite high inventories at "steel service centers." Several Districts noted that builders' reports of materials shortages had dissipated. The Boston and Dallas Districts report that lumber prices were lower. A couple of Districts reported higher real estate prices, and the Atlanta District said health care insurance premiums and pharmaceutical prices continued to escalate at double-digit rates. Return to top         Boston