March 7, 2007
Federal Reserve Districts
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Economic conditions in the Third District improved slightly in February. However, not all sectors shared in the gains. Manufacturers reported just steady activity. Retail sales of general merchandise rose slightly, but auto sales remained soft. Bank lending increased modestly overall, but mortgage lending continued to decline. Sales of new and existing homes slowed further, but commercial real estate markets showed further signs of firming.
Third District business contacts generally expect business activity to continue to expand at a slow pace. Manufacturers expect demand for their products to increase. Retailers expect continued slight expansion in sales, but auto dealers do not foresee a turnaround in sales. Bankers anticipate increases in business and consumer lending, but they do not anticipate a resurgence of mortgage lending. Residential real estate agents and home builders said they see no clear signs that the downtrend in homes sales is coming to an end. Commercial real estate contacts forecast further increases in rents and declines in vacancy rates.
Manufacturers, on balance, expect demand for their products to increase. Among the manufacturers contacted in February, a little more than one-third expect their shipments and orders to rise during the next six months; just under one-fifth expect decreases. The outlook for improved business is fairly widespread among the major manufacturing sectors in the region, although forecasts are not quite as robust as they were last year.
Auto sales in the region remained sluggish in February. Compared to a year ago, sales of domestic makes continued to weaken, while sales of most foreign makes rose. Dealers said they do not expect a general improvement in sales, and they anticipate closings and consolidation among outlets.
Bankers in the District expect business and consumer lending to increase gradually in the next few months, but they do not expect residential mortgage lending to pick up. Although credit quality was generally described as good, some banks said they were seeing signs of weakening financial conditions among home builders and auto dealers.
Real Estate and Construction
Residential real estate agents and homebuilders surveyed in February indicated that sales were still declining. Real estate agents noted that the number of existing homes listed for sale has declined, although the average time houses are on the market before being sold has increased. Home builders have scaled back construction activity sharply, although some builders with projects underway intend to complete construction of the houses planned for those projects. Home builders reported a continued high rate of cancellations, and some have made significant price reductions to sell finished houses. Real estate agents indicated that price appreciation for existing homes has come to a virtual standstill. Although both builders and real estate agents said customer traffic has increased recently, they do not expect a clear signal of the trend in sales until they can gauge the strength of the usual spring upturn.
Prices and Wages
Firms reporting on employment costs in February noted a generally steady trend of moderate wage increases. However, employers in a number of industries said they have had to raise salaries by more this year than last year in order to hire and retain workers in certain professional and managerial occupations, as well as for workers with higher skill levels in a variety of jobs.