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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of Richmond and based on information collected before April 4, 2011. 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 twelve Federal Reserve Districts indicated that economic activity generally continued to improve since the last report. While many Districts described the improvements as only moderate, most Districts stated that gains were widespread across sectors, and Kansas City described its economic gains as solid. Manufacturing continued to lead, with virtually every District citing examples of steady improvement, often with reports of increased hiring. Retailers in the Boston District reported mixed sales results and retail sales remained weak in the Richmond District, but all other Districts experienced at least slight gains in consumer spending and the New York District cited robust sales. Business services, including freight-related activities, improved in most Districts. Loan demand was either unchanged or up slightly in most Districts, with New York, St. Louis, and Kansas City citing weaker lending. Residential and commercial real estate performance varied across Districts. Seven of the Districts described commercial real estate as slightly improved, while five noted that their markets were flat. While most Districts noted little change in their residential real estate markets, half of the Districts cited at least pockets of weakening.

Reports focusing on the near-term outlook were most often upbeat. Some Districts, however, also noted that uncertainties remained high. Boston, Philadelphia, Richmond, Atlanta, Chicago, Minneapolis, and Dallas all noted actual or expected disruptions to sales and production as a result of the tragedy in Japan. Most Districts reported signs of improvement in at least some of their labor markets and Boston, Richmond, Chicago, and Kansas City cited examples of concern among their contacts about being able to obtain certain types of skilled workers. Some businesses in the Philadelphia and Cleveland Districts still preferred to hire temporary over permanent workers.

Wage pressures were described by most Districts as weak or subdued, but higher commodity costs were widely reported to be putting increasing pressures on prices. Energy prices were cited most often, but raw materials in general were an increasing concern of businesses. The ability to pass through cost increases varied across Districts, with manufacturers generally finding less resistance to price increases than either retail or construction (where weak demand was a limiting factor).

Consumer Spending and Tourism
Consumer spending picked up modestly across most Districts since the last report. Consumers were shopping for necessities and looking for lower-priced options or promotional items in the Boston, Chicago, and San Francisco Districts. New York reported strong retail sales in February and March, but noted weaker sales at two major retail chains in New York. Retailers in the Cleveland District reported higher sales relative to a year ago, although a few contacts cited considerable stress in the low- to mid-market segments. Richmond reported weak sales, including for big-ticket items, and Boston received mixed sales reports. Big-ticket sales, particularly for home furnishings, picked up in the Boston, Philadelphia, and Dallas Districts, but remained subdued in the San Francisco District.

Automobile sales rose in most Districts. Dallas noted higher foot traffic at auto dealers and Cleveland, Atlanta, and San Francisco indicated that improved availability of credit helped to boost car sales. In the Richmond District, however, vehicle sales were generally unchanged or sluggish, while dealers in the Chicago District reported a slight decline. Contacts in several Districts expressed concern about potential supply chain disruptions due to production problems in Japan.

Tourism strengthened in the New York, Richmond, Atlanta, Minneapolis, Kansas City, and San Francisco Districts, although Japanese tourism in Hawaii dropped. Tourist activity picked up in the Minneapolis and Kansas City Districts, as visitors enjoyed late-winter sports, and early attendance at the Cherry Blossom Festival in Washington, D.C. was above average. New York noted that hotel occupancy and attendance at Broadway theaters rose above year-ago levels.

Nonfinancial Services
Non-financial service firms generally reported expansion, although Minneapolis and Atlanta heard mixed reports. Demand for business-to-business services increased in the Boston, Philadelphia, Richmond, Minneapolis, and San Francisco Districts. Boston and Minneapolis cited stronger demand for advertising and marketing services. In addition, respondents in several Districts reported higher demand for seasonal accounting services. Contacts at firms providing travel-related services in the Atlanta and Richmond Districts also reported an uptick in demand. Kansas City District restaurateurs said sales were up, but the average check amount had declined; in contrast, restaurant contacts in the Atlanta District gave mixed reports and some in the St. Louis District planned to decrease operations.

Reports from transportation services firms were mostly positive. Contacts in the Cleveland, Richmond, and Atlanta Districts reported an increase in freight transportation volume, notably for vehicles and construction materials. Dallas received mixed reports, however, citing weaker international demand for intermodal transportation; container volume flattened, while railroads reported moderate increases. Carriers in the Atlanta District reported increased air travel for business and leisure, while airlines in the Dallas District indicated traffic was steady. New York and Richmond cited a strengthening in freight trucking, and port activity rose in the Richmond and San Francisco Districts. Shippers in the Atlanta District anticipated temporary disruptions resulting from the disaster in Japan.

All twelve Districts reported that manufacturing activity increased since their previous reports. Ten of the twelve Districts cited a further pickup in production, while Cleveland and Dallas observed steady to slightly improving activity. Dallas said overall demand in manufacturing rose slightly from low levels, noting gains in food, plastics, and construction-related products. Richmond and Chicago reported substantial increases in auto and auto parts manufacturing. Cleveland indicated that auto production overall dipped slightly, but that domestic automakers showed a substantial rise in production. Moreover, St. Louis mentioned that automobile parts and electrical equipment manufacturers reported plans to open new plants in their District. Boston and Kansas City reported that growth of high-tech goods was strong, but several contacts in the Dallas District said that high-tech shipments to Japanese factories declined. Boston and Richmond District respondents attributed a lack of new contracts from federal government agencies to the uncertainties surrounding the budget for fiscal year 2011. San Francisco reported that makers of commercial aircraft and related parts had modest growth in new orders, which they attributed in part to increased demand for aircraft with greater fuel efficiency. Philadelphia said that manufacturers of fabricated metal products and industrial machinery cited higher demand. Similarly, steel producers and metal service centers in the Cleveland District reported that shipping volume met or exceeded expectations, with shipments driven by energy-related, transportation, and heavy equipment.

Comments on the outlook were generally positive. Boston mentioned that manufacturers generally remained cautiously optimistic but voiced greater uncertainty about the outlook for the rest of the year, based on the disruption at Japanese facilities, the geopolitical climate worldwide, and ambiguity about U.S. government spending plans. Likewise, Chicago commented that contacts' optimism was tempered by elevated uncertainties surrounding recent global events. New York and Kansas City stated that contacts remained optimistic about the near-term outlook, and Philadelphia indicated that more than two-thirds of their manufacturers expected business conditions to improve in the next six months.

Real Estate and Construction
Real estate markets for single family homes for the most part either were little changed from low levels or continued to weaken across all Districts. Residential construction was described by Chicago as subdued and the spring building season is likely to be slower than previously anticipated. Market activity was still declining in the St. Louis and Minneapolis Districts, while activity in the New York, Cleveland, Kansas City, Dallas, and San Francisco Districts remained weak. Atlanta characterized the market as mixed, with Florida brokers providing most of the signs of improvement. Both Philadelphia and Atlanta noted that brokers expected the market to improve, and builders in the Cleveland District were more optimistic than in the past several months. A few Districts found pockets of improvement. For example, Philadelphia reported that agents were seeing a pickup in inquiries, showings, and traffic, although there was little increase in sales or construction. Boston noted higher activity in just the last few weeks, due in part to improved weather, and Richmond said that the market for lower-priced homes improved. The multifamily markets strengthened in several Districts, including Chicago, Dallas, Minneapolis, and San Francisco, both in terms of leasing and construction activity.

Commercial real estate activity remained weak across all Districts, although seven reported slight improvements since their last report. Market activity was still slow in the St. Louis and Philadelphia Districts and remained at low levels in the Boston, Atlanta, and San Francisco Districts. Markets in the San Francisco District were characterized as subdued, but leasing activity increased among technology firms. Most other Districts noted improvements, albeit slight, in activity. For example, Chicago and Kansas City cited moderate gains in construction, with Chicago highlighting gains in healthcare and automotive industries. Improvements in the Cleveland District were also driven by healthcare projects and, to a lesser extent, by manufacturing and energy. Office and industrial leasing improved in the Richmond District, although retail was little changed.

Banking and Financial Services
Most Districts cited loan demand as either unchanged or slightly improved since the last report, although many of the Districts citing improvements noted weak demand in some market segments. Banks in the Chicago District noted that their pipeline was still not robust, although manufacturing, food processing, and healthcare experienced some growth. Cleveland reported that business lending was strongest in healthcare and in energy. Consumer loan demand showed some improvement in the Richmond and San Francisco Districts, but was little changed in the Chicago District. Overall loan demand was weak or little changed in the Philadelphia and Kansas City Districts, although Philadelphia noted some improvement in commercial and industrial loans and in some types of commercial real estate loans. However, New York described household demand (for both consumer loans and mortgages) as weakening in its District, and St. Louis noted declines across most segments of its market, including real estate, commercial and industrial, and personal loans.

Several Districts reported that credit standards were unchanged or slightly tighter and that competition for quality loans was intense. For example, Cleveland described credit standards as unchanged, while New York noted no change for consumer loans but tightening for other categories in its District. San Francisco noted that credit standards remained somewhat restrictive. Cleveland characterized loan quality as stable or slightly improved and delinquency rates as stable or trending down. However, New York mentioned an uptick in delinquency rates for commercial and industrial loans. Competition for quality loans was described as intense in the Chicago, Dallas, and San Francisco Districts, putting downward pressures on rates and fees.

Employment, Wages, and Prices
Most Districts reported that labor market conditions were generally stronger than in their last reports. New York, Richmond, Chicago, Minneapolis, Kansas City, and Dallas all noted increased employment activity, while Boston and Atlanta reported modest or gradual improvement. However, Philadelphia, Cleveland and San Francisco mentioned limited or delayed hiring, while labor market conditions were mixed in the St. Louis District. Boston, New York, Cleveland, Richmond, and Dallas cited noticeable improvements in the manufacturing sector, and Boston and Kansas observed increased labor demand in the technology sector. New York, Cleveland, Richmond, Chicago, and Minneapolis received upbeat reports from staffing agencies. New York said that a major employment agency experienced a marked pickup in hiring activity in March, describing it as "the best month in years." A staffing contact in the Cleveland District noted moderate growth in the number of new job openings, with vacancies concentrated in health care, energy and professional business services. A large staffing firm in the Chicago District reported solid growth in billable hours and a substantial increase in permanent placement and recruiting activity, while contacts in the Philadelphia District were inclined to delay additions to permanent or temporary staff. Employers in the Boston, Richmond, Chicago, and Kansas City Districts said that they were experiencing difficulty in recruiting highly specialized workers. Despite signs of improvement in most labor markets, St. Louis and Minneapolis reported examples of layoffs in the manufacturing sector of their regions.

Input prices rose in most Districts, particularly for cotton and other agricultural commodities, petroleum-based products, and industrial metals. In addition, shippers added fuel surcharges in several Districts. Boston, Cleveland and Atlanta cited increasing cost pressures, and some manufacturers in Boston were raising their selling price to pass costs along to customers. The ability to pass through increases, however, varied in both the Chicago and Atlanta Districts, with manufacturers generally being more successful than retail or construction firms. Contacts in the San Francisco District reported a limited ability to pass through higher input prices on anything other than food and gasoline. Kansas Cited stated that more manufacturers and retailers expected to raise prices in coming months.

Wage pressures were reported to be mostly contained, especially in the Philadelphia, Cleveland, Minneapolis, Dallas, and San Francisco Districts. Kansas City noted wages generally held steady, even with expanded hiring, and wage pressures were expected to be contained except for highly competitive or specialized positions. Wage pressures were described as modest in the Chicago District. However, Richmond reported slightly faster wage increases. Boston reported that nearly all of the manufacturing firms that they contacted planned to implement merit increases, and one contact planned a greater merit pool next year to compensate for previous low raises. Philadelphia noted some concern about rising nonwage employment costs, but wages for business firms in the District were mostly steady.

Agriculture and Natural Resources
Assessments of agricultural activity were mixed. Varying degrees of drought conditions persisted in the Atlanta, Kansas City and Dallas Districts, with Chicago indicating that some areas in their District did not have adequate subsoil moisture to endure dry spells. In the Kansas City District, agricultural growing conditions generally worsened in late February and March. In particular, winter wheat crop conditions deteriorated further as the drought in the southern Plains intensified. Dallas reported that drought conditions became more widespread in March, covering more than 90 percent of the District. However, Dallas noted that planting was underway despite concern about the lack of soil moisture for spring crops. Chicago also indicated that planting should proceed quickly in most of the District, as fields were in good condition with ground moisture sufficient for an excellent start to the crop year. Moreover, the Minneapolis District continued to enjoy good conditions in spite of wet weather and spring flooding. Most Districts reported that prices of fuel and feed continued to put downward pressure on margins, but prices for most agricultural commodities remained strong. Atlanta said that strong global demand contributed to elevated prices for some farm acreage, while Kansas City attributed higher farmland values to strong crop prices and a limited number of farms for sale.

Activity in the energy industry generally strengthened since the last report. Minneapolis, Kansas City, and Dallas reported increased drilling activity as demand firmed. In the Atlanta District, deep-water drilling permits were issued in late February for the first time since the Gulf oil spill last April, although the number of rigs operating in the Gulf of Mexico was still only about half the number prior to the spill. In the St. Louis and Kansas City Districts, coal production remained above year-ago levels, but was stable to moderately lower in the Cleveland District. Kansas City reported increased drilling activity, with exploration shifting away from natural gas toward crude oil, while Cleveland indicated that oil and gas output held steady. In the San Francisco District, extraction activity for natural gas expanded, while Minneapolis reported that late-March oil exploration activity increased since mid-February. Minneapolis also noted that iron ore mines in northern Minnesota were operating at full capacity, with expectations that 2011 production will be the highest in more than 10 years.

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Last update: April 13, 2011