March 9, 2005
|Skip to content
Prepared at the Federal Reserve Bank of New York and based on information collected on or before February 28, 2005. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Information received from District Banks suggests that the economy has continued to expand at a moderate pace since the last report. All twelve Districts indicated that economic activity has increased, though Richmond reported some deceleration in the pace of growth, while Dallas noted some acceleration. Relatively brisk growth was reported in the New York and San Francisco Districts.
Consumer spending was steady to up moderately, with a number of Districts noting sluggish auto sales. Retailers were mostly satisfied with current inventory levels and were generally optimistic about the outlook. Travel and tourism activity were characterized as strong, with a few exceptions. Reports from most other service industries also showed improvement. Nearly all Districts reported continued expansion in manufacturing activity. Housing markets and residential construction activity were described as robust in most areas, but commercial real estate markets were mixed. Most Districts reported little change in overall loan demand, though a few indicated some pickup.
Labor markets strengthened in almost all Districts; while wages continued to increase at a moderate pace, employers in many Districts reported ongoing pressures from higher benefit costs. Many Districts reported increased difficulty in locating skilled workers for at least some industries. A number of Districts reported increases in prices for manufactures and materials, but others noted some easing of input costs; prices of consumer goods and services were mixed but relatively flat, on balance.
Consumer Spending and Tourism
Tourism showed increased strength in most Districts, though a few reported that activity was hampered by unfavorable weather. Robust tourism activity was noted in New York, Richmond, Atlanta, Kansas City, and San Francisco; New York attributed some of the strength to the Central Park "Gates" exhibit, Richmond cited unseasonably warm weather, and Atlanta noted some positive effect from the weaker dollar. On the other hand, Boston and Minneapolis indicated some softness in tourism, partly attributed to an unusual geographic distribution of winter snow.
Sustained increases in the cost of energy, steel, and other materials were widespread. However, some moderation in the pace of cost increases was reported by the New York, Philadelphia, and Cleveland Districts, with a faster rate of increase noted only by the Richmond District. A recent drop in energy prices was cited by some Districts as helping to stabilize input price increases. The weaker dollar reportedly has stimulated exports in the Atlanta District, although some Districts cited the dollar's decline as exerting continuing upward price pressures on imported inputs. Several Districts noted that their manufacturing contacts were optimistic that the coming year would bring continued growth, with some seeing expansion of factory headcounts.
Real Estate and Construction
Commercial real estate markets were, on balance, stable. Office markets were steady in Boston, New York, Philadelphia, Richmond, St. Louis, and Dallas, with Boston and Dallas noting substantial ongoing slack in the market. On the other hand, some firming was reported in the Atlanta, Minneapolis, Kansas City, and San Francisco Districts. Philadelphia, St. Louis, and Minneapolis reported some pickup in the market for industrial space, but Boston, New York, and Richmond reported steady to somewhat softer markets. Richmond noted a slight decline in retail vacancy rates.
There were scattered reports of increases in commercial construction activity. Philadelphia reported an increase in industrial building, Cleveland reported a pickup in retail construction, and Richmond noted two major office projects in the pipeline. Some general, albeit modest, increases in commercial construction were also reported in Chicago, St. Louis, and San Francisco.
Banking and Finance
Credit standards were unchanged across the board, and loan quality was widely described as steady and strong. Contacts in Chicago, Dallas, and San Francisco indicated that the lending environment was highly competitive, leading to narrowing margins, while contacts in Dallas expressed some concern about excessive supply of funds available to commercial mortgage markets.
Agriculture and Natural Resources
Activity in the energy industry was reported as buoyant and optimistic, given the continuing pattern of higher energy prices. The Dallas and Kansas City Districts reported an increase in active rigs since the last report. Capacity in the industry is being strained by labor and equipment availability, although activity is expected to continue to improve.
Manufacturers were reported to be raising employment in the Boston, Philadelphia, Cleveland, Chicago, and Minneapolis Districts. On the other hand, manufacturing employment has been steady to lower, on net, in Atlanta, St. Louis, and Kansas City. A number of industries have seen tightening labor markets across several Districts. Increased labor demand was reported in financial services (Boston, New York, Kansas City, and Dallas), legal services (New York, Minneapolis, and Dallas), and freight transportation and distribution (Cleveland, Richmond, St. Louis, and Kansas City). There were also reports of scattered skilled labor shortages in many Districts. New York and Cleveland noted a dwindling supply of skilled workers to fill job openings generally; and a number of other Districts reported shortages of skilled job applicants in specific industries, such as trucking, shipping, construction, energy, health care, and media.
Overall wage increases were characterized as moderate in all Districts. Still, a number of Districts cited larger wage gains in certain industries, including securities (New York), trucking (Cleveland and Kansas City), legal services (Minneapolis and Dallas), pharmaceutical services (Kansas City), and accounting (Kansas City and Dallas). Reports of ongoing sharp increases in benefit costs, particularly health insurance, were fairly widespread.
Despite the stability in consumer goods prices, manufacturers in a number of Districts--including Boston, Cleveland, Kansas City, and Dallas--indicated that they have been finding it increasingly easy to pass along price increases; Philadelphia producers anticipated greater ability to boost prices in the near future. Also, truckers in the Cleveland and Atlanta Districts indicated that they have been offsetting rising fuel costs with surcharges.
A number of Districts reported persistent pressures on input costs, though some noted that these have eased since the last report. Firms in Boston, Richmond, Atlanta, Minneapolis, Dallas, and San Francisco reported sizable increases in prices of various raw materials. The most commonly mentioned were construction materials (especially steel) and fuel. Quite a few Districts also mentioned continued rapid escalation in health insurance costs, though San Francisco indicated that these have decelerated. More generally, New York, Cleveland and Chicago indicated that input cost pressures have abated somewhat since the last report.