June 15, 2005
Federal Reserve Districts
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Through the eight weeks in April and May, District business conditions continued to show some unevenness across sectors, but were still supportive of growth on net. In the manufacturer sector, activity at the District's durable goods facilities generally continued its recent increases, and for the first time in recent reports, notably more nondurable goods producers indicated improvements in production. Reports from retailers continued to be varied, though discounters saw slightly better sales than earlier this year. Commercial builders continued to report improvements in conditions, though residential builders saw sales continue to decline slightly through April and May. At the District's banks, commercial loan demand remained robust. And demand for shipping services rebounded in recent weeks, after slowing slightly in March and April.
Input cost increases continued to moderate in April and May, though interestingly, some firms appeared more able to pass input cost increases on to their end consumers. Hiring throughout the District remained modest in most industries, though staffing-services companies reported some increases in available openings.
In general, nondurable goods manufacturers also reported slight increases in activity in recent weeks, with production levels slightly above those of this time last year. Many firms anticipate steady improvements in production throughout the rest of 2005, though the current pace of new orders growth does not indicate an improving production trajectory. Firms that supply the auto industry are anticipating weaker production.
As in recent reports, hiring among manufacturers remained modest, with durable goods producers increasing staff sizes more often than their counterparts in nondurable good production. Still, the use of overtime appears to have increased in April and May for durable and nondurable goods producers alike. Firms that attempted to hire noted more difficulty attracting adequately trained candidates. Regarding increases in capital outlays, most contacts indicated that their firms were likely to spend according to their previously budgeted plans. Firms typically indicated that there was a limited need to expand or replace existing equipment, as many had made significant capital outlays over the last few years; few cited the partial-expensing tax provision that expired in 2004 as a significant factor in their decisions.
In general, input cost increases continued to abate, but costs are still up substantially from a year ago. Steel prices, in particular, appear to have fallen noticeably, with prices for some steel products falling below last year's levels. Energy costs, however, continued to increase in recent weeks. Firms continue to have some success passing previous rounds of input cost increases along to their customers.
After improving sales in March and April, District automobile dealerships reported sluggish sales in May. Sales seemed to be much weaker in the District than was true nationally. And for the first time in recent reports, sales trends for trucks and SUVs were poor. Inventories were characterized as high at dealers selling domestic makes. In general, incentives also remained generous at District dealerships.
Nonresidential builders, by contrast, experienced somewhat stronger growth than homebuilders. Most commercial contractors reported an increase in activity in the second quarter, as well as on year-over-year basis. Several builders cited public projects and manufacturing as areas where demand was especially strong. Backlogs are also up for most builders. Regarding materials prices, steel price pressures have eased, though costs for petroleum-based products have continued to increase in recent weeks. Nevertheless, contractors report that it is easier to pass input cost increases on to their end consumers. Though most firms expect conditions to continue to improve throughout the year, hiring and additional capital investments remain limited.
Trucking and Shipping