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Business activity in the Fourth District continued to expand at a modest pace since our last report. Manufacturers reported a slight rise in production, though several noted a softening in market conditions. Freight transport volume increased for a broad range of manufactured goods. Information received from retailers remained positive, while auto dealers experienced a slight downturn in sales. Energy producers noted little change in output. New home construction was sluggish, whereas nonresidential building is picking up some. The demand for business credit rose slightly, and activity in consumer lending was mixed.
Rising payrolls were mainly limited to the manufacturing sector. Staffing-firm representatives noted moderate growth in the number of new job openings, with vacancies concentrated in health care and manufacturing. Wage pressures are largely contained. Reports of elevated prices for commodities, steel, fuel, and other raw materials were common. As a result, manufacturers, retailers, and freight carriers passed through some of these higher input prices to their customers.
Reports from District factories indicate that production was stable or slightly up during the past six weeks, with a moderate rise in backlogs. A majority of our contacts maintain a favorable outlook, some of which was attributed to strength in offshore markets. However, several manufacturers said that market conditions are beginning to soften. Many steel producers and service centers reported that the rise in shipping volume seen in the first quarter is beginning to taper off, due in part to pricing issues and declines in consumer demand. Shipments are being driven by capital goods, autos, and energy-related industries. They anticipate volume remaining at current levels until a seasonal slowdown, which typically occurs during the third quarter. District auto production dropped sharply during April on a month-over-month and year-over-year basis. Most of the decline was due to supply disruptions caused by events in Japan.
Manufacturers remain committed to raising capital outlays in the upcoming months relative to year-ago levels. Nonetheless, about a third of our contacts reported that they are delaying the start of some projects. Capacity utilization rates are below what is considered normal for a majority of manufacturers. Prices for metal and agricultural commodities, steel, and petroleum-based products remain elevated. Most of our contacts reported passing through some of these higher input prices to their customers. A few producers commented that steel and scrap prices have peaked and are expected to begin falling back. Manufacturers continued hiring at a modest pace, with most new hires being higher-skilled workers. Several contacts also noted a slight increase in wage pressures.
New home construction remains at a very low level, with purchases mainly in the move-up buyer categories. The uptick in traffic and sales noted in our last report was not sustained. Two of our contacts told us that more interest exists in multi-family construction than single-family. Home builders do not expect the market to turn around any time soon, which they attributed to tight credit, a glut of houses on the market, and the fact it currently costs more per square foot to build a new house than to buy an existing house. List prices and discounting of new homes held steady, while some upward pressure on the cost of building materials was reported. Several builders said they want to construct more spec houses, but banks are unwilling to provide financing. Subcontractors are doing somewhat better due to facing less competition and taking on additional remodeling work. General contractors continue to work with lean crews, and no hiring is expected in the near term.
Information on nonresidential construction varied widely. However, one aspect our contacts agreed on was a moderate improvement in inquiries. Activity is being driven by industrial projects and high-end projects (greater than $100 million) that are now in the construction phase, after several years of planning. We heard reports of a pullback in healthcare-related work. A majority of our contacts expect that activity will slowly improve as the year progresses. Financing is more readily available if developers are willing to increase their equity share. We heard reports of increased prices for building materials, particularly for steel. One contact noted that materials suppliers are holding back price increases due to a lack of demand. Contractors are absorbing rising materials prices in their margins. General contractors held payrolls steady, and they expect little, if any, new permanent hiring in the upcoming months.
Reports from retailers indicate that sales for the period from early April through mid-May rose in the low to mid-single digits and were generally on or ahead of plan. However, some of the increase was attributed to the rise in gasoline and food prices. Transactions were mostly higher relative to year-ago levels. Many of our contacts noted that rising sales included discretionary items. Looking forward, retailers are cautiously optimistic about third-quarter sales. We continue to hear about rising vendor prices, although they were mainly limited to food- and fuel-related products. Retailers passed through some of the increases to consumers. Reports on profit margins were mixed, with declines taken primarily by grocers. Capital outlays remain on plan and are slightly higher than year-ago levels. No change in payrolls is expected at existing stores.
Auto dealers reported that new-vehicle sales showed a slight downturn during April and early May. March sales were given a big boost due to regional auto shows. On a year-over-year basis, vehicle purchases increased for almost all of our contacts. Demand for smaller, fuel-efficient cars continues to rise, while inventories were characterized as somewhat low by most dealers and may be hurting sales. Dealers are cautious in their outlook due to high gas prices and concern over the availability of vehicles with a Japanese nameplate. Demand for used cars is fairly strong, especially those that are fuel efficient. However, scarce inventory is contributing to rising prices. Credit availability and pricing have improved, and the use of leasing as a credit alternative is growing. Automakers are now putting in place timetables for dealers to complete reimaging and expansion of their facilities. The only roadblock from the dealers' perspective is the ability to obtain financing. Most auto dealers are beginning to hire on a selective basis.
Demand for business loans was stable or grew at a modest pace. Industries driving loan demand were broad-based, with a few of our contacts noting a pick up in construction loan requests for multi-family dwellings. On the consumer side, demand for home equity lines of credit and vehicle purchases (direct and indirect) remains strong, while activity in other installment loan categories was weak. Interest rates for business and consumer credit were stable, but competitive. Half of our contacts noted an uptick in the residential mortgage market, with activity equally distributed between refinancing and new purchases. Overall core deposits continue to grow, especially in demand accounts. The credit quality of business and consumer applicants was characterized as steady or improving. Delinquency rates were stable or trending down across loan portfolios, with the exception of real estate. Staffing levels have shown little change during the past few weeks, and about half of our respondents said that they expect some selective hiring to occur during 2011.
Reports indicate that oil and natural gas drilling and production held steady during the past six weeks, with little change expected in the near term. Wellhead prices paid to independent producers were flat for natural gas and continued on a modest upward trend for oil. Coal production was stable to moderately lower since our last report, with little change anticipated for the remainder of the year. Spot prices for coal, especially metallurgical, are moving higher, which was attributed in part to a rise in transportation costs. We heard several reports of increased prices for diesel fuel, equipment, parts, and materials used in coal production. Severe spring weather in the Midwest is interfering with coal shipments to utilities and exports from New Orleans. Energy payrolls are expected to remain at current levels.
Freight transport executives reported that shipping volume expanded for a broad range of manufactured goods, and they expect markets will continue to grow in the upcoming months. Several contacts told us that they are attempting to raise their shipping prices as customer contracts come up for renewal, and they are seeing a slight bottom-line improvement. The price for diesel fuel remains elevated, with most of the increase being passed through to customers via surcharges. We also heard several reports about rising costs associated with recent changes in environmental and federal safety regulations. Capital outlays are expected to accelerate during 2011, if financing can be obtained. Spending will be mainly for replacement, although some additions to capacity have been announced. Hiring has been for driver replacement, seasonal work, and maintenance mechanics. Wage pressures are emerging due to a tightening of the driver pool.