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The Seventh District economy continued to expand in March and early April, with
reports suggesting that gains were more widespread than during the previous
Beige Book period. Contacts suggested that both consumer and business spending
continued to improve modestly. Hiring generally remained subdued, though there
were scattered reports of firming labor demand. Overall construction and real
estate activity remained strong. Manufacturing continued to expand solidly.
Lending activity generally picked up slightly. Prices appeared to be firming at
both the producer and retail levels, though there were no new reports of upward
pressure on wages and other labor costs. The situation for farmers continued to
improve, as agricultural prices generally rose and field conditions were
favorable for spring planting in almost all of the District.
Consumer spending
Reports on consumer spending were again somewhat mixed, but
suggested further improvement in March and early April. A contact with one
national department store chain said that sales gains so far this fiscal year
were in the low double digits, above their expectations. These gains were
driven primarily by strong sales of home-related items as well as a notable
pickup in women's apparel and accessory sales. Moreover, a large regional
discounter said that food and other nondurables were selling well. Consumers
were also said to be more responsive to advertising. On balance, merchants said
that inventories remained lean. March theater ticket sales were up from a year
earlier, according to one contact, due in part to some highly anticipated movie
releases. Light vehicle sales in the District were somewhat soft again in March
and early April, despite increased consumer incentives. Some dealers said that
inventories were higher than desired, and they were cutting back orders for new
vehicles. Contacts in tourism said that leisure travel in the region was
generally flat.
Business spending
Overall business spending continued to firm modestly in March and
early April. A contact with one large technology firm said the improving
economic environment led Information Technology managers to raise their
forecasts for equipment and software spending in 2004. Some retailers have
boosted their expansion plans for the year. However, contacts suggested that
business travel remained relatively weak. A contact with one staffing services
firm noted that new orders from manufacturers picked up sharply in recent weeks,
particularly in the skilled trades. There were scattered reports of new
permanent full-time hiring, and more firms indicated that they plan to hire
later in the year. Still, much of the actual new hiring so far appears to be
temporary, seasonal, or part-time. According to several contacts, many firms
still lack enough confidence in the expansion's sustainability to increase
their permanent workforces.
Construction and real estate
Overall construction and real estate activity remained strong,
buoyed by low interest rates and improving economic conditions. Existing home
sales were again robust in most areas, with one Chicago-area Realtor adding
that some homes in the ultra-luxury market were "starting to move, after
sitting on the market for quite a while." New home sales and permits were
strong as well, although some contacts said that the upper end of the new home
market remained soft. Realtors and builders alike appeared more optimistic
about home sales in 2004 than they had been during our previous reporting
period. Nonresidential activity was still sluggish, although there were
scattered reports of improvement. Much of the new activity was reported to be
in the light industrial, retail, and infrastructure segments. Although office
leasing picked up slightly, the market remained soft and many contacts
suggested it will remain so in the foreseeable future. One contact said that
with weak job creation and an abundance of available space, office rents were
generally flat, and landlords were "beating each other up to get a lease
signed."
Manufacturing
Manufacturing activity continued to expand solidly in the District. Contacts in
a wider array of key industry segments reported stronger new orders, shipments,
and backlogs while inventories remained generally lean. One steelmaker
described demand as "still very hot," adding that his firm was
running at capacity and turning down some new orders. In turn, a heavy
equipment manufacturer noted that production was being limited somewhat by
shortages of materials, particularly steel. This contact also said that new
orders and backlogs in March were up considerably from a year ago, due in part
to continued strength in construction and a rebound in some mining industries.
Producers of cement and gypsum wallboard also cited the active construction
market as contributing to strong new orders and shipments. Automakers noted
that light vehicle demand continued to firm nationally in March, though
inventories were still somewhat elevated. However, automakers have not altered
second-quarter production plans because they expect sales to pick up.
Banking and finance
On balance, lending activity picked up slightly in recent weeks. On the
consumer side, one lender reported that credit card volumes were trending up in
March and early April. Applications for residential mortgages rose in March;
many bankers said that new originations remained strong into early April, while
refinancing subsided after a "mini boomlet" in March. Consumer credit
quality generally continued to improve and there were no changes reported in
standards and terms for household loans. Business loan volumes were again
relatively flat, well below most bankers' expectations. Many lenders said that
their customers' cash flows were improving, and that firms were using that cash
to meet their short-term liquidity needs rather than borrowing. Demand for
small business and commercial real estate loans appeared stronger than for
other types of loans. Business credit quality continued to improve modestly,
and there were no discernible changes in covenants and/or collateral
requirements.
Prices and costs
Reports of firming prices were more frequent in March and early April. Apart
from auto dealers, retailers generally indicated they were using less
discounting to move merchandise than a year ago. Some materials prices (such as
for steel, cement, and gypsum wallboard) increased notably in March. Many
contacts suggested that domestic inventories of some materials were very lean,
and the availability of low-priced foreign product was limited by a weaker
dollar and sharply higher freight rates. At the producer level, manufacturers
were largely successful in passing materials cost increases through to their
customers. There were no reports of new upward pressures on wages and other
labor costs.
Agriculture
Agricultural conditions improved again this reporting period. Agricultural prices for corn,
soybeans, milk, hogs, and beef generally were higher. Most farmers have sold
their stored crops, generating higher farm income that has contributed to an
increase in overall spending in rural communities. Sales of both new and used
farm equipment have increased, especially smaller items at auction. With spring
planting beginning, ground moisture levels were reported to be abundant in most
of the District, with only a few areas facing inadequate subsoil moisture.
Contacts reported that planting intentions had shifted, with more acres
expected to be allocated to corn and fewer to soybeans. This shift was due to
recent relative price changes as well as expectations for higher soybean yields
resulting from planting soybeans every third year rather than alternating every
year with corn. With most farmers applying fertilizer in the fall, energy price
increases have not had a large impact yet. Land values and cash rents of
agricultural land moved upward again, leading to speculation that some leases
will be renegotiated this summer.
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