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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of Philadelphia based on information collected before November 18, 2002. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a representation of the views of Federal Reserve officials.

Economic activity grew slowly, on balance, in late October and early November, according to information received by Federal Reserve District Banks. Business conditions were described as soft or sluggish in Boston, Atlanta, Chicago, Minneapolis, and Dallas. Cleveland and St. Louis reported mixed conditions. There was marginal improvement in Philadelphia, Kansas City, and New York. Richmond and San Francisco reported continued growth, but at a slower pace than in the previous survey period.

Consumer spending varied among Federal Reserve Districts. There was some improvement in general merchandise sales in New York, Philadelphia, Cleveland, Richmond, Kansas City, and Dallas. Sales were weak in Chicago, Minneapolis, St. Louis, and San Francisco. Auto sales have fallen in all Districts. Service industry activity was generally sluggish. Manufacturing remained soft in most Districts, but Philadelphia and Minneapolis noted some improvement. Business capital spending in all sectors continued to be limited. Commercial real estate markets continued to be slack in all the Districts reporting on this sector. Residential real estate remained strong, although New York, Chicago, and Dallas saw some signs of easing demand for housing. Agricultural conditions have been adversely affected by heavy rain and cold weather in southern parts of the nation but are good elsewhere. There has been little change in energy production but mining has declined. Bank lending remains strong for residential real estate, but other categories of lending have been lackluster.

Labor markets continued to be soft in nearly all Federal Reserve Districts, although demand for health-care workers remained strong. Wage and salary pressures were subdued, but employee health-care costs continued to rise sharply. Most Reserve Banks reported nearly steady prices at both the consumer and producer levels, with the exception of shipping charges, which have risen in the wake of the West Coast port disruptions.

Consumer Spending
Retail sales of general merchandise varied among Federal Reserve Districts in October and early November. Gains were reported in New York, Philadelphia, Cleveland, Richmond, Kansas City, and Dallas. However, the increases were generally slight compared with late summer and early fall. Atlanta described retail sales as mixed and about even with a year ago. Chicago and Minneapolis reported weak retail sales, and St. Louis and San Francisco indicated that retail sales had declined from September to early November. The onset of colder weather in most parts of the country boosted sales of outerwear. Sales also increased for food and grocery items and small home furnishings, but several Districts noted flat or declining sales of big-ticket and luxury items. Discount stores posted better sales growth than other types of stores in most Districts, and in New York and Philadelphia retailers reported that consumers were shifting purchases to discount brands.

All the Districts reporting on auto sales noted declines in October compared with the same month last year and compared with the sales rate set during most of the year until October. The slower sales rate continued in November, and some further declines were noted in the Kansas City and San Francisco Districts. Dealer inventories have increased. In the Philadelphia and St. Louis Districts, dealers said inventories were too high, but dealers in the Chicago and San Francisco Districts said inventories were not excessive despite the increase.

Tourism activity has been mixed. Boston, Richmond, Minneapolis, and Kansas City reported that recent tourist travel, lodging, and spending had increased from last year in most parts of their Districts. Chicago indicated flat tourism. In the Atlanta, Dallas, and San Francisco Districts, travel and tourism have been weaker this year than last, although Atlanta noted that advance bookings for winter cruises were strong.

Service industry activity remained weak. In Boston, demand for information technology services has declined. Service companies in the Richmond District have had sluggish revenue growth. Service-sector activity was slow in the Dallas District, and demand for most business services was said to be soft in the San Francisco District.

Trucking firms in the St. Louis District still have large backlogs resulting from the West Coast port disruptions. Delays in receiving shipments were reported from Boston and Philadelphia, although deliveries in those Districts appeared to be getting back to normal. Atlanta-area retailers remain concerned about getting all their holiday merchandise delivered before Christmas. Also in the Atlanta District, Asian motor vehicles and parts have been in short supply because of the West Coast shipping interruption and slowdown. Dallas reported that transportation activity in the District was at low levels. In Cleveland and Kansas City, there were few reports of difficulties obtaining shipments.

Most Districts reported continuing weak conditions in the manufacturing sector in October and early November. Demand for manufactured goods remained soft in the Boston, Richmond, Atlanta, Chicago, and Dallas Districts. Conditions were mixed in the Cleveland, St. Louis, and San Francisco Districts, although San Francisco noted an increase in cancellations of orders at manufacturers in the District. Kansas City reported an apparent stabilization in the District's manufacturing sector in late October and early November after a decline earlier in the fall. Manufacturers in the New York, Philadelphia, and Minneapolis Districts reported some improvement, on balance.

Conditions varied among specific goods-producing sectors. Boston and Chicago indicated that capital goods industries had flat or falling sales. Producers of industrial equipment were seeing improved demand in the Philadelphia and Richmond Districts. Philadelphia and Dallas noted declining orders for construction materials. Orders at defense plants have increased according to Boston and Atlanta. New York noted a fairly broad rebound in the manufacturing sector. In general, manufacturers have been producing below capacity, and they have been implementing cost-reduction measures to maintain profitability.

Among the Districts reporting on manufacturing inventories, there was no clear pattern. Manufacturers in the Philadelphia and Cleveland Districts have reduced inventories recently. Inventories remained low among manufacturers in the San Francisco District. Chicago District manufacturers had recent increases in inventories but generally described inventory levels as "fair."

Capital Spending
Business capital spending continues to be limited, according to most of the Reserve Banks reporting on this activity. In the Boston District, retailers generally plan little if any increases for 2003, manufacturers' plans are mixed, and information technology and software companies will keep their capital budgets flat. In the Richmond District, retailers' plans are mixed, although most are planning upgrades to information systems next year. Manufacturers in the Philadelphia District plan to increase capital spending in the next six months, on balance, and there are some reports of higher capital spending among manufacturers in the St. Louis District. But manufacturers intend little change in capital spending in the Kansas City District in the next six months, and they are delaying or canceling spending in the Atlanta District.

Real Estate and Construction
Commercial real estate markets remained weak in all twelve Federal Reserve Districts. Rising vacancies, increased subleasing, and declining rents have been evident in nearly all office markets. Commercial construction has also slackened. San Francisco reported that commercial development has all but stopped. Commercial construction has picked up in a few parts of the Richmond and St. Louis Districts, even though those Districts also reported general softness in nonresidential construction.

Residential real estate markets continued to be strong in the majority of Districts. There has been little change in the pace of home sales in Philadelphia, Richmond, Atlanta, St. Louis, and Kansas City. In the Cleveland District home builders have been exceeding planned construction rates, and home building in the Minneapolis District is ahead of last year's pace. Residential real estate markets remained "solid" in San Francisco, but growth of new home construction has slowed. Both San Francisco and Atlanta reported some weakening in demand for homes in the higher price ranges. Three Districts indicated that residential markets were softening: New York, Chicago, and Dallas. In the Chicago and Dallas Districts cancellations of house-construction contracts have increased.

Recent rains in many parts of the nation have ameliorated drought conditions, but heavy rains in the South have damaged some crops and delayed field operations. This year's grain crops, especially corn and soybeans, in the Cleveland, Chicago, and St. Louis Districts are expected to be below those of recent years. The cotton crop in the St. Louis District and the sugar cane crop in the Atlanta District were also significantly damaged by rainstorms. In contrast, farmers in the Minneapolis District expect large increases in corn, soybean, and wheat production, and Dallas expects good cotton and winter wheat crops.

Natural Resource Industries
Federal Reserve Districts reporting on the energy sector noted little change in activity in October and November. In the Minneapolis District, oil and gas production rose slightly, but exploration efforts have been flat. The oil and gas rig count edged up in the Kansas City District but was steady in the Dallas District. According to contacts in the Kansas City District natural gas inventories were high, but unusually strong winter demand could outstrip production capacity. Minneapolis reported that non-energy mining activity in the District had moved down somewhat.

Financial Services and Credit
Residential loan demand continued to be strong in most Districts for both refinancings and purchase mortgages. New York, Philadelphia, Cleveland, Richmond, Chicago, Kansas City, and Dallas noted continuing strength or further growth in mortgage activity. However, Atlanta and San Francisco reported recent slowing in mortgage activity. Commercial and industrial loan demand remained soft in New York, Philadelphia, Richmond, Chicago, and St. Louis. Such loan demand was said to be flat in Cleveland and edging up in Kansas City. Bankers in the Philadelphia, Chicago, and St. Louis Districts said business loan demand was low because businesses have less interest in or need for funds, since their inventories, accounts receivable, and investment spending have declined. Reports of weakening consumer loan demand, other than real estate related, came from New York, Philadelphia, and Dallas. Consumer loan demand has strengthened somewhat in Cleveland, Chicago, and Kansas City, although growth rates were not robust.

Cleveland, Dallas, and San Francisco reported that deposits have been growing at banks and other depository institutions in their Districts, but Kansas City indicated that deposits in that District have been flat. Philadelphia noted that sales of annuities have been growing in that District as investors look to increase their returns but are reluctant to make further commitments in the stock market.

Employment and Wages
Nearly all Reserve Banks reported continued softness in labor markets, although New York indicated there were scattered signs of a pickup in demand. Kansas City reported a continuing high rate of lay-off announcements. Hiring at temporary employment agencies was picking up, although slowly, in Boston, but growth in temporary help employment had stalled in Chicago and was described as "lukewarm" in Richmond. An exception to the generally flat demand for workers in most Districts is the health-care sector, where the supply of available workers remains below employers' needs. Retailers will hire close to the normal number of seasonal employees, according to Philadelphia and Richmond, but stores in Atlanta are being cautious in adding workers for the holidays.

Wage and salary pressures remain subdued. Kansas City indicated that wage pressures were virtually nonexistent. Dallas noted that temporary help wages have been flat or declining. San Francisco reported that many firms in that District were canceling usual year-end bonuses. Although wage and salary trends have been weak, increases in employee health-care costs have been large and widespread.

Most Reserve Banks reported generally steady retail prices in November. Boston indicated that retail prices for goods have been flat and that hotels, restaurants, and tour companies have introduced low-priced package deals. New York noted a decline in selling prices for most consumer goods. Chicago and San Francisco said retail prices have shown little change.

In the industrial sector prices have changed little. Manufacturers' selling prices have been flat to down, and prices for software and information technology services have been practically unchanged in Boston. Manufacturers' selling prices have declined in New York, although input costs have risen. Manufacturers' input costs and output prices have been mainly unchanged in Philadelphia. Manufacturers in the Chicago District said they have little pricing power.

Minneapolis reported modest price increases generally, and Dallas noted more price reductions than increases. San Francisco noted that truckers, marine shipping companies, and air freight companies have imposed extra charges related to shipping delays occasioned by the West Coast port problems.

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Last update: November 27, 2002