September 9, 2009
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Prepared at the Federal Reserve Bank of Atlanta and based on information collected before August 31, 2009. 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.
Reports from the 12 Federal Reserve Districts indicate that economic activity continued to stabilize in July and August. Relative to the last report, Dallas indicated that economic activity had firmed, while Boston, Cleveland, Philadelphia, Richmond, and San Francisco mentioned signs of improvement. Atlanta, Chicago, Kansas City, Minneapolis, and New York generally described economic activity as stable or showing signs of stabilization; St. Louis remarked that the pace of decline appeared to be moderating. Most Districts noted that the outlook for economic activity among their business contacts remained cautiously positive.
The majority of Districts reported flat retail sales. Richmond, Philadelphia, Chicago, Atlanta, and Boston remarked that retailers continued to carefully manage inventories, keeping them in line with low sales levels. A majority of Districts confirmed that the "cash-for-clunkers" program boosted traffic and sales. Richmond, Atlanta, Chicago, and Minneapolis also noted increases or planned increases in automobile-related production. Most regions reported some improvement in residential real estate markets. Downward pressure on home prices continued in most Districts, although Dallas and New York noted that local prices were firming. Reports on commercial real estate suggest that the demand for space remained weak and that nonresidential construction-related activity continued to decline. San Francisco, Philadelphia, and St. Louis noted that the demand for nonfinancial services remained soft, although the pace of the decline was described as slowing in the latter two Districts. Loan demand was described as weak and many Districts reported that credit standards remained tight. Most Districts reported improvements in manufacturing production. For instance, Philadelphia, Richmond, Atlanta, Cleveland, and Chicago reported moderate increases in new orders. Labor market conditions remained weak across all Districts. However, staffing firms in Atlanta, Dallas, Richmond, Cleveland, Philadelphia, Boston, New York, and Chicago did report a slight pickup in the demand for temporary workers.
Wage pressures remained minimal across all Districts. Consumer prices were described as being steady in most Districts, although Kansas City and San Francisco noted some downward pressure on retail prices.
Consumer Spending and Tourism Consumer spending remained soft in most Districts. The majority of Districts reported that retail activity was flat. Boston, Philadelphia, and Kansas City noted improvement in sales, but attributed the increase primarily to back-to-school purchases. Philadelphia, Chicago, Cleveland, and San Francisco observed that shoppers remained focused on essentials and continued to refrain from purchasing discretionary and big-ticket items. Kansas City and San Francisco noted weak restaurant sales. Richmond, Philadelphia, Chicago, Atlanta, and Boston remarked that retailer inventories were being closely monitored and were keeping them in line with low sales levels.
The majority of Districts reported that the cash-for-clunkers program helped boost traffic and sales, although Cleveland and Kansas City also remarked that used car sales were adversely affected by the program. The sustainability of the higher recent pace of new vehicle sales was questioned by industry contacts in the Richmond, Atlanta, Minneapolis, and San Francisco Districts.
Tourism activity varied. Kansas City, Minneapolis, and Richmond observed solid visitor numbers at local vacation destinations, whereas Atlanta and New York noted sluggish activity and aggressive hotel discounting. San Francisco reported that activity in California and Nevada was weak, but visitors to Hawaii had increased.
Real Estate and Construction
Reports on commercial real estate markets indicated that demand for space remained weak and that construction continued to decline in all Districts. Atlanta, Philadelphia, Richmond, and San Francisco reported that vacancy rates increased, while rates held steady in the Boston and Kansas City Districts and were mixed in New York. Boston, Dallas, Kansas City, Philadelphia, and Richmond commented that the demand for space remained weak. Commercial rents declined according to Boston, Chicago, New York, Philadelphia, and Richmond. Rent concessions were reported in the Richmond and San Francisco markets, and Richmond noted that some landlords had postponed property improvements in an effort to conserve cash. Construction remained at very low levels, with modest improvements noted in public construction in the Chicago, Cleveland, and Minneapolis Districts.
Banking and Financial Services
Mortgage activity declined modestly according to the Philadelphia, Cleveland, and Kansas City Districts, while Richmond reported increases attributed to improved demand for starter homes. Dallas noted an uptick in refinancing activity. Commercial and industrial lending declined in the Philadelphia and Kansas City regions, and was steady according to Richmond. The lack of available credit was cited as an issue for both residential and commercial contractors in Cleveland, and for commercial real estate borrowers in Atlanta. San Francisco reported an increase in venture capital investment.
Further deterioration in credit quality was noted by Philadelphia, Richmond, Dallas, and San Francisco, whereas Cleveland observed some improvement in credit quality. Chicago also cited improvements in credit quality, apart from home equity and commercial real estate. Dallas and Chicago noted increases in consumer bankruptcies, while rising delinquency rates were reported by New York and Cleveland.
The near-term outlook among manufacturers varied, but the majority of reports indicated that manufacturers were cautiously optimistic. Boston, New York, and Philadelphia reported that their contacts expect modest growth later this year or early 2010. Boston noted that while its contacts generally expect modest growth, several cost control measures would remain in place. Dallas reported increased uncertainty among construction-related manufacturers, while Cleveland noted that half of their manufacturing contacts expected weak demand into 2010.
Employment, Wages, and Prices
Wage pressures remained low across all Districts. Several Districts noted businesses and local governments imposing wage freezes or even reducing employee compensation in some instances. Boston noted that several manufacturers who have cut wage rates do not expect to restore pay levels until next year. Kansas City, Philadelphia, Chicago, Minneapolis, San Francisco, Dallas, and Richmond noted an increase in the cost of some raw materials, including fuel, metals, and steel. Chicago and Dallas mentioned that excess supply was putting substantial downward pressure on natural gas prices. Retail prices were described as generally steady in most Districts, although Kansas City and San Francisco noted continued discounting and downward pressure on consumer prices.
Agriculture and Natural Resources
Atlanta, Dallas, Kansas City, and San Francisco noted increased oil and gas inventories as a result of reduced consumption. Contacts in the natural gas industry noted that subdued demand continued to suppress prices and has lead to cutbacks in extraction activity. Cleveland indicated that weak demand for electricity prompted coal producers to scale back production and capital investment. Kansas City noted that although coal production in Wyoming had risen, it remained below year-ago levels. Dallas and Atlanta remarked that oil and gas drilling activity continued to decline in the Gulf of Mexico, whereas Kansas City and Dallas reported that the number of rigs operating on land had increased.