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The economy in the Fourth District has shown a slight improvement since our last report, though activity remains sluggish. Reports from factories indicated that production was flat to up slightly, with increases being attributed to new orders. New home construction remains weak, while nonresidential building activity was mixed. Credit availability continues to be an issue for residential and commercial contractors. Sales by District retailers were steady to down slightly. New motor vehicle sales received a substantial boost from the cash-for-clunkers program, whereas purchases of used vehicles slowed. Coal production fell, with little change noted in oil and gas output. Freight transport volume remains at low levels. Commercial and industrial loan activity was stable to declining. Consumer lending was generally characterized as soft, with indirect auto lending as the only bright spot in the consumer portfolio. Core deposits increased across the District.
Only modest employment declines were reported in commercial construction, banking, and coal mining. Reports from staffing firms showed that job openings were flat to up slightly. Given the weak labor market, wage pressures are contained. Increased prices for metals and lumber have moderated somewhat since our last report. Capital spending remains at low levels and little change is expected in the upcoming months.
Reports from District factories showed that production was flat to up slightly during the past six weeks, with increases being attributed to new orders. On a year-over-year basis, factory output remains depressed. However, the year-over-year difference in output between this and previous reporting cycles is shrinking. Half of our contacts expect demand will remain at low levels going into 2010. While other contacts anticipate some improvement going forward, they are not expecting a return to 2008 levels. Most steel producers and service centers reported a slight pickup in shipping volume, which met or exceeded expectations. While no end markets stood out as being particularly strong, a few contacts anticipate a pickup in the auto industry. Our steel contacts expect current shipping trends to continue; nevertheless, they do not expect a substantial turnaround through year's end. District auto production fell modestly during July on a month-over-month basis. Production declines can be attributed, in part, to the aftermath of the GM and Chrysler bankruptcy proceedings and retooling for model changeovers. Production of both domestic and foreign nameplate vehicles in the District remained well below year ago levels.
Although capacity utilization remains below historic norms, several manufacturers noted improved utilization rates since our last report. In general, capital spending remains at low levels and little change is expected in the upcoming months. Reports show that increases in raw material prices (especially for metals) were beginning to moderate, though some upward pressure on product pricing continues. There were only minimal reports of further cuts in payroll costs through layoffs, wage reductions, and curtailments in work hours. Wage pressures are contained.
The residential construction industry remains weak. Builders reported little change in activity during the past six weeks; nonetheless, two of our contacts said that sales are up on a year-over-year basis. Foot and Internet traffic was characterized as stable or increasing slightly, and sales trends are expected to remain at current levels or fall off slightly through year's end. Several builders told us they would like to construct a few spec houses, but they are unable to obtain financing. Sales of homes in the entry-level price category are doing well, which contractors attributed to the first-time home buyer tax credit. Lumber prices have declined from their seasonal high, while concrete prices remain elevated. General contractors continue to operate with skeleton crews, and subcontractors are available at competitive rates.
Reports on nonresidential construction were mixed, with some improvement seen by contractors participating in public works projects. Activity in private commercial and industrial building was characterized as slow due to declining inquiries and backlogs. All of our respondents said that business has fallen on a year-over-year basis. Looking forward, most contacts expect construction activity will be very weak during 2010. We continued to hear numerous accounts of difficulties in obtaining financing for private-sector projects. On balance, little change in construction materials prices was noted. A few general contractors reported laying off employees, while subcontractors are readily available.
July sales for District retailers were steady to down slightly on a month-over-month basis and were lower than a year earlier. Reports show that consumers continued to focus on purchasing necessities rather than discretionary items. Retailers' expectations for fourth-quarter sales were decidedly mixed. On balance, vendor and retail pricing has been stable. A few retailers noted that they have increased markdowns to move inventory. Reports from auto dealers indicated that, for the most part, new vehicle sales were up during July and early August due to the cash-for-clunkers program. Several dealers told us that sales equaled or were greater than those made in July 2008. However, we also heard reports of dealers not participating in the cash-for-clunkers program due to its complexities and delays in payments from the federal government. The cash-for-clunkers program and higher prices were cited as reasons for a slowing in purchases of used vehicles. Most dealers are uncertain about future sales due to weak economic conditions and difficulties in obtaining credit. On balance, there has been little change in staffing levels at retailers and auto dealers.
Demand for commercial and industrial loans was stable or declining, although a few community banks reported a continuing stream of business from refinancing loans that were turned away by regional banks. Interest rates and credit spreads are either holding steady or increasing slightly. On the consumer side, loan demand is best characterized as soft, with interest rates holding steady for the most part. Indirect auto lending (new and used) has been the only bright spot in the consumer portfolio. Several bankers attributed part of the boost in indirect lending to the cash-for-clunkers program. Residential mortgage applications have slowed considerably since the second quarter, and most applications are for refinancing. Core deposits continued to grow across the District. Most bankers characterized loan applicants' credit quality as good or improving, especially on the consumer side. There continues to be a slight upward trend in delinquencies, with residential mortgages and consumer loans being the biggest contributors. Higher lending standards remain firmly in place, with no easing expected. Staffing levels are stable or decreasing, but most reductions have occurred over time through controlled attrition.
Coal executives reported a sharp decline in production, which they attributed to very weak demand from electric utilities. One executive noted that a boost to domestic producers may come from the Chinese, who have begun to import coal. Another executive said that contract prices for coal have dropped 50 percent on a year-over-year basis. Little change in oil and gas output was reported, though drilling activity has fallen off substantially or stopped. Spot prices for natural gas and oil continued to trend downward. Almost all of our energy contacts expect that production will remain flat or decline further in the near future. For the most part, the cost of production equipment and materials has fallen. Capital spending by coal producers has been put on hold, while expenditures by most oil and gas producers remain as projected. Employment levels in the oil and gas industry were largely stable, although coal executives reported workforce reductions and cuts in overtime.
Freight transport executives reported that, for the most part, shipping volume has stabilized at low levels or continues to decline. Any pickup cited was attributed to competitors exiting the market. Shipping rates remain very competitive. Looking forward, a majority of our contacts expect slight incremental improvements in volume, based on increases in auto production and spending on infrastructure projects. They also anticipate continuing downward pressure on shipping rates. Several transport executives reported having difficulty renewing or increasing their lines of credit. Capital spending remains substantially below historic norms and is expected to remain at low levels for the next several months. On the labor front, most hiring is limited to driver turnover and a few management positions that opened due to attrition.