June 8, 2011
|Skip to content
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
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.
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.
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
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
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
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
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.