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New York
St. Louis
Kansas City
San Francisco

Full report

Prepared at the Federal Reserve Bank of New York and based on information collected on or before May 27, 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 expand since the last report, though a few Districts indicated some deceleration. Some slowing in the pace of growth was noted in the New York, Philadelphia, Atlanta, and Chicago Districts. In contrast, Dallas characterized that region's economy as accelerating. Other Districts indicated that growth continued at a steady pace. Manufacturing activity continued to expand in most parts of the country, though a number of Districts noted some slowing in the pace of growth. Activity in the non-financial service sectors expanded at a steady pace, led by industries related to information technology and business and professional services.

Consumer spending was mixed, with most Districts indicating steady to modestly increasing activity. Elevated food and energy prices, as well as unfavorable weather in some parts of the country, were said to be weighing on consumers' propensity to spend. Auto sales were mixed but fairly robust in most of the country, though some slowing was noted in the Northeastern regions. Widespread supply disruptions--primarily related to the disaster in Japan--were reported to have substantially reduced the flow of new automobiles into dealers' inventories, which in turn held down sales in some Districts. Widespread shortages of used cars were also reported to be driving up prices. Tourism activity improved in most Districts.

Residential construction and real estate continued to show widespread weakness, except in the rental segment, where market conditions have strengthened and construction activity and development have picked up. Non-residential real estate leasing markets have been generally stable, while construction activity has remained very subdued. Loan demand was steady to stronger in most Districts, especially in the commercial and industrial sector, and widespread improvement was reported in credit quality.

Agricultural conditions were unfavorable across much of the nation, largely reflecting unseasonably cool and wet weather; widespread flooding along the Mississippi River hampered agricultural production in the Atlanta and St. Louis Districts. In the Dallas District, in contrast, drought conditions hurt the wheat crop and led to broader damage from wildfires. The energy industry showed continued strength, with robust expansion in oil drilling and extraction activity.

Labor market conditions continued to improve gradually across most of the nation, with a number of Districts noting a short supply of workers with specialized technical skills. Wage growth generally remained modest, though there were scattered reports of steeper increases for highly skilled workers in certain occupations. Most Districts continued to report widespread increases in commodity prices; manufacturers are said to be passing along a portion of the higher costs in the form of price hikes and fuel surcharges.

Consumer Spending and Tourism
Consumer spending was generally described as steady to up modestly since the last report, with most Districts indicating small increases from a year ago. Non-auto retail sales were indicated to be expanding steadily in the Philadelphia, Cleveland, Minneapolis, Kansas City and Dallas Districts, while sales were characterized as stable or decelerating in the New York, Atlanta, Chicago, St. Louis and San Francisco Districts. Sales were reported to have declined in the Richmond District, and Boston described sales as mixed but generally down from a year earlier. Retail inventories were generally said to be at satisfactory levels, though St. Louis characterized inventory levels as being on the high side. A number of Districts noted that a combination of unfavorable weather and high fuel and food prices have weighed on consumer spending in recent weeks. Cleveland and San Francisco noted increased spending on discretionary items, and Philadelphia indicated that some luxury goods retailers fared relatively well. On the other hand, Chicago reported a decline in discretionary spending.

Most Districts reporting on vehicle sales indicated that they have been steady to stronger since the last report, specifically Richmond, Chicago, St. Louis, Kansas City, Dallas and San Francisco. In addition, Atlanta noted firm demand for automobiles. On the other hand, some softening in car sales was noted in the northeastern Districts of New York, Philadelphia and Cleveland. Many Districts indicated that supply disruptions, primarily from Japan, have contributed to lean inventories, which have impeded auto sales somewhat. There has also been widespread tightening in the market for used cars, reflecting both strong demand and a shortage of inventory. Shifts in consumer demand toward smaller, more fuel efficient cars were noted in the Philadelphia, Cleveland, and Chicago Districts, while St. Louis mentioned a shift from higher-end to lower-end models.

Tourism activity has generally strengthened since the last report, and the outlook for the summer season looks positive. Improvement in this sector was reported in the Richmond, Atlanta, Kansas City, and San Francisco Districts; in addition, New York reported that tourism increased in April but appeared to edge back in early May. Dallas maintained that travel activity has been mixed, while Minneapolis indicated that tourism has been slow recently due to adverse weather, but that inquiries and advance bookings for the summer season look strong. St. Louis noted that flooding forced the temporary closure of numerous casinos along the Mississippi River.

Nonfinancial Services
Activity in the non-financial service sectors continued to strengthen in most Districts, with the notable exception of St. Louis, which reported fairly widespread declines. Service sector activity generally expanded in the Boston, New York, Philadelphia, Richmond, Minneapolis, Kansas City and Dallas Districts, though Richmond noted deceleration in the pace of growth. There were also pockets of strength in particular sectors. Information technology firms saw activity expand in the Boston, Richmond, Minneapolis, Kansas City, and San Francisco Districts. Employment agencies in the Boston and Chicago Districts indicated continued improvement in activity, while New York and Dallas reported some slowing in this industry. New York, Richmond and Minneapolis cited strengthening in business and professional services, while San Francisco indicated steady to mixed activity in this sector.

Activity in the transportation sector improved in the Cleveland, Atlanta, Kansas City and Dallas Districts. Philadelphia and Richmond noted some slowing in growth, and New York reported steady shipping activity, while San Francisco indicated a slowdown in cargo traffic at Southern California seaports. Dallas also reported weakening in container trade volumes but noted increases in cargo volume, railroad shipments and small parcel shipments.

Manufacturing activity was reported as continuing to increase since the last report in all but two districts, although many noted that the pace of growth had slowed. The Boston, Atlanta, St. Louis, Minneapolis, and San Francisco, Districts reported that activity expanded, and the Dallas District reported a pickup in demand; the Philadelphia, Richmond, Chicago, and Kansas City Districts reported that activity expanded but at a slower pace, while activity was reported as steady in the New York District and stable to growing in the Cleveland District. Supply disruptions related to the earthquake in Japan led to reduced production of automobiles and auto parts in several Districts. The Cleveland District noted a sharp drop in auto production, the Atlanta and St. Louis Districts also saw production fall, and auto deliveries were reported as having declined in the Richmond District. The Atlanta District said lost production in its region would be made up later in the year. Contacts in the Chicago District said that contingency plans to deal with supply disruptions were helpful in mitigating the effects. High-tech firms in the Boston and Dallas Districts reported that shortages of parts, due to disruptions in Japan, had adverse effects on business; in contrast, there were few supply constraints that affected technology-related products in the San Francisco District.

Growth was reported as strong for semiconductors in the San Francisco and Boston Districts. The Cleveland District reported that steel producers were seeing shipping volumes level off after a strong first quarter performance, and the Chicago District noted a decline in second quarter orders for industrial metals, although orders for the third quarter were coming in at a more positive pace. A contact in the Richmond District said that demand for industrial metals had leveled off. The Chicago District reported a decline in activity for construction materials and household goods. Production remained strong for makers of commercial aircraft and parts in the San Francisco District.

Looking forward, contacts in most districts were generally optimistic about the outlook, although less so than the last report. The Cleveland District said that the majority of manufacturing contacts maintained a favorable outlook, although some are delaying the start of capital projects. Contacts were generally cautiously optimistic in the Boston District, although some expect sales growth to moderate. Contacts were mostly positive about the outlook in the Philadelphia District, though the level of optimism was not quite as strong as in the last report. Chicago District contacts expect conditions to rebound in the coming months. A majority of contacts in the Atlanta District planned to increase production.

Real Estate and Construction
Residential real estate sales markets showed continued weakness in most Districts, while rental markets strengthened. Most Districts indicate that home prices have declined since the last report: Boston, Philadelphia, Richmond, Atlanta, Kansas City, and San Francisco all report some downward drift in selling prices, while reports from the New York and Cleveland Districts indicate that prices have been steady, on balance. No district indicates a general increase in home prices. Sales activity, though widely reported to be at low levels, picked up somewhat in the Philadelphia, Atlanta, Chicago, and Kansas City Districts. Dallas indicated that improved traffic has raised prospects of improved sales in the second half of 2011, and Boston observed signs that the market is stabilizing. Sales activity was characterized as mostly steady in the New York, Cleveland, Dallas and San Francisco Districts, but declining in the St. Louis and Minneapolis Districts. Those Districts reporting on the residential rental market--specifically, New York, Atlanta, Chicago, Minneapolis, Dallas, and San Francisco--all indicate that conditions have strengthened. In terms of residential construction, activity has remained generally depressed, with a number of Districts reporting a large overhang of distressed properties. However, a number of Districts--New York, Cleveland, Atlanta, Chicago, and San Francisco--report improved prospects for development of multi-family rental properties.

Commercial and industrial real estate markets have generally been steady since the last report, though there have been scattered signs of a pickup. Commercial leasing markets showed modest signs of improvement in the Richmond and San Francisco Districts. Boston and Dallas noted some firming in property sales markets, but Kansas City reported declines in prices for office buildings. Non-residential construction, though widely reported to be at very low levels, rose modestly in the Boston, Chicago, Minneapolis, and Dallas Districts, though Chicago noted that public sector projects are becoming smaller. Cleveland observed a pickup in industrial and high-end commercial development but a pullback in healthcare-related projects. Richmond reported some pockets of strength in the retail market. More broadly, contacts in a number of Districts expressed a general sense of optimism about the outlook for the second half of 2011.

Banking and Finance
Most Districts described loan demand as mixed or slightly improved since the last report. Consumer loan demand showed some improvement in the Cleveland, Richmond, and St. Louis Districts, but held steady or weakened in the New York, Atlanta, Dallas, and San Francisco Districts. Demand for residential mortgages (including new purchases and refinances) increased in Cleveland but held steady in New York, Richmond, St. Louis, and Kansas City. Contacts in the Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Dallas, and San Francisco Districts noted a modest uptick in business loan demand. The increase in business loan demand in Cleveland was described as broad-based, including a pickup in construction loan requests for multi-family dwellings. Boston noted an improved lending environment for commercial real estate, and demand for commercial mortgages increased in New York and Dallas. Commercial and industrial loan activity increased in Richmond, Chicago, St. Louis, Dallas, and San Francisco, held steady in New York, and decreased in Kansas City. Outside of banking, Chicago and San Francisco indicated increased investment activity by hedge funds, venture capital firms, and other forms of private equity.

Credit standards were reported to be mixed but, on balance, a bit easier in recent weeks. New York, Cleveland, and Atlanta noted increased credit availability for automobile loans; Atlanta, Minneapolis and San Francisco indicated easier credit for some types of business loans. Boston reported some easing in commercial real estate lending, but New York reported tighter standards in that segment. Credit standards on home mortgage loans tightened somewhat in the St. Louis District. A number of Districts noted improvements in overall credit quality: specifically, Philadelphia, Cleveland, Richmond, Kansas City, Dallas, and San Francisco. New York indicated rising delinquency rates on consumer loans but declining rates on commercial loans and mortgages.

Agriculture and Natural Resources
Agriculture conditions were unfavorable in many districts, with various weather related difficulties leading to delays and below-average plantings of key crops. Excess precipitation and cool temperatures delayed the planting of corn, soybeans, and other crops in the Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City Districts, although Richmond reported that some parts of its District benefited from favorable weather conditions. Cool temperatures also delayed the development of some crops in the San Francisco District. Flooding on the Mississippi River slowed activity for farmers in the St. Louis and Atlanta Districts. The Dallas District reported that drought conditions had become severe and that the wheat crop was expected to be particularly poor; wildfires also led to significant agricultural losses in its District. Commodity prices were reported as strong in the Atlanta and Minneapolis Districts, but were down in the Chicago District. Hog prices were higher in the Chicago, Minneapolis, and Kansas City Districts, while cattle prices were reported as lower in the Chicago and Kansas City Districts but higher in the Minneapolis and Atlanta Districts.

Activity in the energy industry remained robust. Drilling activity was reported as strong and growing in the Dallas District, and work is being re-permitted in the Gulf of Mexico. The San Francisco District reported that oil extraction activity grew strongly in response to rising demand overseas, and that the demand for natural gas continued to expand. In the Minneapolis District, oil exploration activity increased. Contacts reported an increase in drilling activity in the Kansas City District, although shortages of equipment and labor created some drilling constraints. The St. Louis District reported that coal production was modestly lower.

Employment, Wages, and Prices
Most Districts reported gradual improvement in labor market conditions since their last reports. Boston, New York, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, and Dallas all noted general improvement in employment conditions, while job growth was mostly limited to the manufacturing sector in the Cleveland and St. Louis Districts. Demand for permanent and temporary-to-permanent hiring increased in the Boston, Richmond, Atlanta, and Chicago Districts. While labor was generally available, contacts in the Boston, Atlanta, Minneapolis, Kansas City, Dallas, and San Francisco Districts indicated that labor market conditions have tightened for workers with specialized technical skills, particularly in the healthcare and technology sectors. Despite signs of continued modest improvement in most labor markets, Minneapolis noted several examples of expected layoffs and St. Louis reported plans for layoffs in the District's services sector.

Wage pressures were reported to be largely contained in most Districts, as abundant labor availability has continued to limit the pace of wage growth. Modest wage pressures were reported in the Boston, Cleveland, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco Districts, while wages were reported as steady in New York and Philadelphia. However, contacts in the Minneapolis, Kansas City, Dallas, and San Francisco Districts noted that wage increases have been more significant for some highly skilled workers in occupations with labor shortages. Firms' expectations for labor and benefits costs moderated slightly in Atlanta.

Input prices continued to increase in most Districts, particularly for agricultural commodities, petroleum-based products, and industrial metals, although the pace of growth slowed in the Chicago and Kansas City Districts. In addition, several Districts reported that fuel surcharges have increased or become more widely used since the last report. While Boston indicated that firms were able to pass along most input price increases into selling prices, contacts in Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco noted only a limited ability to pass through these cost increases to their customers, with manufacturers generally being more successful than retail or construction firms. In general, selling prices increased only modestly, except for food and energy prices, which continued to escalate. In addition, low inventory levels contributed to price increases for used cars in the New York, Cleveland, Chicago, and San Francisco Districts. Plans to implement future increases in selling prices were reported in the Boston, New York, Chicago, and Dallas Districts.

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Last update: June 8, 2011