Prepared at the Federal
Reserve Bank of St. Louis and based on information collected before
September 13, 1999. This document summarizes comments received from
business and other contacts outside the Federal Reserve System and is
not a commentary on the views of Federal Reserve officials.
All district economies continue to
exhibit overall strength, with most experiencing moderate-to-brisk
rates of growth. Retail sales are generally up in most districts, with
back-to-school sales meeting or exceeding retailers' expectations in
many cases. Vehicle sales remain robust, although some dealers are
unable to meet demand for popular models. Industrial activity is on the
rise in most parts of the country, with orders and production both up.
In some cases, resurgent Asian demand is contributing to this rise in
activity. Although commentary from most district reports continues to
highlight widespread labor shortages, several districts have noted a
slackening in the demand for labor. There are few reports of
acceleration in nominal wages and salaries, although some districts
note a substantial upswing in the cost of health-care benefits. While
price pressures at the consumer level remain mostly calm, numerous
districts report significant increases in some materials prices. Home
sales and construction remain elevated, but many districts have begun
noticing a slowdown. Commercial real estate markets are tight in many
districts. Loan demand, except for residential real estate loans, is
well-sustained across districts. Credit quality and standards remain
unchanged, for the most part. The recent drought has worsened crop and
livestock conditions in the East and parts of the Midwest.
Most districts report that retail sales are up from their year-ago
levels. Back-to-school sales, in particular, either met or exceeded
expectations in the Boston, Chicago, Philadelphia, Richmond and St.
Louis districts. The Atlanta district, however, reports declining sales
from a year earlier, while the Kansas City and New York districts
indicate mixed or flat sales. The San Francisco district notes that
back-to-school shoppers remained cautious this year, searching for
bargains and delaying purchases until Labor Day sales arrived. Apparel
sales have been brisk in the Atlanta, Cleveland, Kansas City,
Philadelphia and St. Louis districts, but not in the Chicago district
or parts of the New York district. The Minneapolis district reports
strong sales of high-end electronics in Minnesota. Hot weather hampered
sales of lawn-and-garden goods in the New York, Richmond and St. Louis
districts. Most districts report that retailers' inventories are at
desired levels, although some contacts in the Cleveland district note
that their inventories are a bit lean. On the other hand, some contacts
in the Kansas City district believe that their inventories are too
Auto sales, particularly of new
vehicles, remain strong in most parts of the country. The Cleveland,
Dallas, Kansas City and St. Louis districts note substantial gains in
auto sales, while the Richmond district reports a weakening of sales,
due mostly to hot weather. Consequently, dealer inventories in the
Richmond district are up. On the other hand, some dealers in the
Cleveland, Philadelphia and St. Louis districts are still having
difficulty stocking enough popular models to meet demand; inventories
are not a concern for dealers in the Kansas City district.
Manufacturing activity appears to have accelerated in almost every
district. The Richmond district, however, reports some moderation in
the rate of growth. The Kansas City district notes that its contacts
are experiencing their highest capacity-utilization levels in a year.
The Chicago, Cleveland and St. Louis districts report solid demand for
steel and other metal products, particularly from the auto industry.
The Boston, Dallas and Minneapolis districts note strong demand for
semiconductors and computer components. The San Francisco district
reports that improving demand from East Asia has boosted orders in the
electrical equipment, wood, chemicals, processed food and industrial
machinery industries. Industrial machinery production also accelerated
in the Atlanta district and rebounded in the Boston district.
The production of apparel appears to
be down across the board. Orders for heavy trucks and construction and
agricultural equipment have weakened at Chicago district firms. While
the tobacco industry in the St. Louis district is experiencing a
slackening in domestic demand, tobacco shipments from Richmond district
firms remain strong. The commercial aerospace industries in the Atlanta
and San Francisco districts report weakening demand.
The Philadelphia district notes that
manufacturing inventories are at desired levels. The Atlanta district
comments that a maker of batteries and flashlights expects heavy demand
around year-end and, therefore, plans to increase its inventory
accordingly. Cleveland district contacts report no inventory
stockpiling, while San Francisco district contacts have seen their
excess inventories drawn down recently. Contacts in the Kansas City
district plan to trim inventories soon because they are getting too
For the most part, the theme of this report is unchanged from recent
reports: The demand for labor continues to outstrip the readily
available supply of labor in most areas. The Atlanta, Chicago,
Minneapolis and Philadelphia districts note that tight labor markets
remain the norm. Retailers in the Boston, Kansas City and New York
districts reported that they cannot find enough staff to fill
vacancies. Manufacturers in the Boston and St. Louis districts express
the same concern. A couple of districts continue to highlight the
construction industry's ongoing labor supply problems, although the
number of these reports has lessened somewhat. Demand at temporary
employment agencies remains on the upswing in the Boston, Dallas and
Richmond districts, while remaining steady in the Cleveland district.
In contrast, a few districts have noticed a slight easing of labor
market tightness. The Richmond district reports that manufacturing
employment and hours have grown at a slower pace than they had
previously. The completion of Y2K-compliance work in some industries in
the Dallas district has reduced the demand for technology workers,
while weakness in the San Francisco district's commercial aircraft
industry has led to layoffs at major producers and suppliers.
Wages and Prices
On balance, wage and salary increases remain within the range noted in
previous reports. Wages at manufacturing firms are reportedly picking
up in the Minneapolis, Philadelphia and Richmond districts, remaining
steady in the St. Louis district, and easing somewhat in the Kansas
City district. The Boston and Minneapolis districts note that wages at
retail establishments are growing between 3 and 5 percent; in the
Kansas City district, retailers report feeling increased wage
pressures. The Cleveland and Dallas districts note accelerating wage
growth, particularly among some classes of temporary workers. The
Atlanta and Minneapolis districts report sharp increases in the
employer costs of health-care benefits.
The majority of district reports
indicate that price pressures at the retail level are not readily
apparent. Where they are apparent, they are categorized as temperate.
Prices pressures at the wholesale level appear to be somewhat greater.
The Chicago, Cleveland and Richmond districts report price increases at
manufacturers, with steel makers in the Cleveland district announcing
hikes of between 5 and 7 percent. The Atlanta, Cleveland, Kansas City,
Philadelphia and Richmond districts all report that higher raw
materials costs are evident. The Dallas district adds that construction
costs (both labor and materials) are up between 5 and 8 percent so far
this year. The San Francisco district, however, notes that prices for
manufacturers' inputs have been "stable or declining."
Real Estate and Construction
The consensus across most districts is that while home sales remain
elevated, some slowing has recently become apparent in both sales and
construction. Home sales have already weakened somewhat in the Atlanta
and Chicago districts. The New York district, however, reports that
real estate activity in New Jersey is increasingly being hampered by
supply constraints--low inventories of existing homes and a shortage of
usable land for new construction. The San Francisco district notes that
real estate markets in Southern California, the San Francisco Bay Area
and Washington's Puget Sound region are robust; elsewhere in the
district, they have slowed. Just about all districts cite higher
mortgage rates as a primary reason for the recent slowing. Other
reasons include rising building costs and market saturation. Many
districts are still reporting labor and/or material shortages, which
are delaying construction. The Richmond district, however, notes that
fewer complaints about labor or material shortages were received,
perhaps signaling an easing in the pace of residential construction.
Still, it seems that numbers of sales and new construction
permits/starts in most districts are ahead of year-ago levels.
Commercial real estate markets are
tight in the Boston and Philadelphia districts, although real estate
agents in the Philadelphia district believe that demand there may be
peaking. The Cleveland district reports that nonresidential market
conditions remain at a high level. Speculative nonresidential building
is up in the St. Louis district. Apartment construction is strong in
parts of South Dakota because of low vacancy rates.
Banking and Finance
Despite a drop in demand for mortgage and home-refinance loans, lending
activity remains relatively strong. Only the Philadelphia and St. Louis
districts report weaker overall loan demand. The strength of business
lending varies by district, with only the Chicago, Cleveland, New York,
Philadelphia and Richmond districts citing growth in the
commercial-and-industrial loan category. Consumer lending has
strengthened further in the Atlanta, Dallas and Kansas City districts,
has weakened in the Philadelphia and St. Louis districts, and has
remained unchanged in the Richmond district. The Dallas and
Philadelphia districts add that residential real estate lending remains
healthy. The Cleveland and St. Louis districts report that competition
for deposits is strong, while banks in the Dallas district report
steady loan growth. Banks in the Kansas City and New York districts
have recently tightened credit standards; banks in other districts
report no change in standards. Outside of a concern about agricultural
loan performance, credit quality remains good.
Agriculture and Natural Resources
Drought conditions in much of the East and parts of the Midwest have
taken their toll on both crops and livestock. The Chicago, Cleveland,
Richmond and St. Louis districts all indicate that their corn and
soybean crops are in poor-to-fair condition. The Cleveland district
notes that the tobacco crop is also suffering. The rice and cotton
crops in the St. Louis district are in good condition, though. The San
Francisco district reports that unseasonable weather has lowered the
quality and yield of many of its grains, fruits and vegetables. In
contrast, the Dallas, Kansas City and Minneapolis districts report
favorable agricultural conditions, with their corn and soybean crops in
good-to-excellent condition and with above-average yields expected.
Livestock in the Cleveland, Dallas
and Richmond districts are in poor-to-fair condition. Many farmers in
the Cleveland and Richmond districts have begun feeding hay to their
herds because of poor pasture conditions. Some farmers in the Cleveland
district have even started paring down the sizes of herds. In the
Kansas City district, however, low feed costs, stronger cattle prices
and increasing profits are leading to a rebuilding of herds.
Strong demand for natural gas has
increased prices and drilling activity in the Dallas and Kansas City
districts. With the price of oil also on the rise, the number of rigs
on-line in the Kansas City district has been rising. In the Minneapolis
district, though, the rig count is below year-ago levels.
First District - Boston
Business activity continues to expand
moderately in the First District, although some contacts express more
caution as they look forward than has been the case in recent reports.
New England retailers indicate their sales grew solidly during the
summer months and most manufacturers report single-digit increases in
business. Wages are said to be rising in the 2.5 to 5 percent range.
Prices may be rising slightly faster, on average, than at the last
report, although many prices are said to be flat or down.
Most retail contacts report solid growth that met expectations during
the summer (June through August). Discount retailers indicate their
back-to-school period was stronger than expected, while consumer
appliance retailers cite growth that was slower than expected.
Employment is said to be holding
steady. Every sector reports very tight labor markets, but for the most
part, they are not constraining retailers' operations. One exception is
the tourist industry, which was unable to find the usual seasonal help
for the summer season. Retailers mostly say that base wages are
increasing at a 3 to 5 percent rate, but overall compensation is
increasing faster because performance-based incentives raise payroll in
line with sales. Only in the tourist industry are wage premiums being
offered to attract labor.
Respondents say that consumer prices
are holding steady, with two exceptions. Hotel room rates are reported
to be rising at a 5 percent rate and discount retailers engaged in less
price discounting than usual during the back-to-school season. Supplier
prices are also said to be holding steady.
Contacts report that modest capital
expansions are planned over the next six months. Looking forward,
respondents are more cautious in their outlook than they have been in
recent reports, though still quite positive. Most expect continued
strong growth through the remainder of the year, with a growth slowdown
arriving in the first quarter of 2000.
Manufacturing and Related Services
Most First District manufacturing contacts report that recent business
is up relative to a year ago, typically at a single-digit rate. Demand
in the semiconductor, furniture, and home renovation industries is
rising much more sharply than the norm. Producers of industrial
machinery and parts indicate that sales remained sluggish in the second
quarter but now seem to be improving. Sales of apparel textiles and
supplies used by steel foundries continue to decline as a result of
import competition, as do sales to the oil and gas drilling industry.
Makers of selected consumer items report negative impacts as some of
their retail chain customers lose market share.
Manufacturers indicate mostly small
changes in input costs. In contrast with previous reports, more
contacts report increases than decreases. Selling prices are mostly
flat or up a little from a year ago. However, some industrial machinery
and office equipment prices are still falling. A seafood processor and
a furniture maker, who raised their prices early in the year, have kept
them stable in recent months.
Most contacts report fairly steady
headcounts. Average pay increases remain in the range of 2.5 to 5
percent, but respondents frequently mention accelerating costs for
health insurance. Several companies say that they experienced unusual
difficulties hiring and/or retaining production workers; one of these
contacts indicates that the resulting wage pressures are problematic
and another foresees higher pay increases after the current union
contract expires. Otherwise, complaints about labor shortages are
largely unchanged. To some degree, this is attributed to manufacturers'
continuing efforts to introduce capital improvements that reduce either
labor requirements or non-labor costs.
Most manufacturers are fairly upbeat
about future trends, citing continued positive momentum in the U.S.
economy or their own success in controlling costs. Less than
one-quarter of respondents expect to increase inventories appreciably
as a hedge against Y2K-related delivery problems, although some others
plan very selective increases. Mostly the ramp-up will entail foreign
items, especially from Asian suppliers.
Temporary employment firms continue to expand in the First District;
they are seeing increased business and opening new locations. All
contacts report growth in overall revenue from a year earlier, ranging
from "slightly up" to 20 percent. Tight labor markets are
nonetheless constraining growth, with unfilled requisitions thought to
represent substantial amounts of unattained revenue. Supply shortages
persist for workers of all skill levels and firms have been forced to
concentrate more effort on recruiting.
Wages are rising modestly, on
average, though firms cite double-digit increases for workers in more
technical areas. For the most part, contacts relate that prices are
rising in line with wages, yielding steady profit margins. Outlooks are
extremely positive. Contacts have high expectations for the future
performance of New England's staffing industry and most predict that
demand will grow unabated.
Commercial Real Estate
The commercial real estate market in New England remains strong. Most
contacts report rising prices and rental rates, and steady or declining
vacancy rates. As in the past, the Boston office market is particularly
strong, with downtown vacancy rates at 5 to 6 percent and rental rates
rising steadily. Boston suburbs have higher vacancy rates and lower
rental rates than downtown, but demand from high-tech companies remains
strong. Vacancies are expected to remain low in Boston even after some
planned office buildings are completed, because most of the new space
The rest of New England is also doing
well. Although Hartford still reports the highest vacancy rates in the
region, contacts say office vacancy rates have declined to around 15
percent and rental rates are up 3 to 4 percent from a year earlier.
Contacts in New Hampshire and Providence report strong demand and
rising rental rates for industrial and office space. Maine respondents
report no change in vacancy or rental rates. Most contacts anticipate
market conditions to remain strong.
All but one respondent at insurance companies reports ongoing or
planned reductions in employment. These cutbacks are mostly associated
with mergers and restructurings; some of them are being achieved
through use of early retirement programs. Contacts note continued
tightness of the labor market in the information technology and
Second District - New York
The District's economy continues to
expand at a moderate pace, with an acceleration in manufacturing
activity largely offset by some slowing in retail sales. While there
has been some acceleration in input prices, there has been no
broad-based increase in consumer price inflation. Retailers report that
sales were slightly below plan, on balance, in August, but picked up
again in early September; most report less discounting than usual thus
far in the third quarter. Housing demand remains strong, especially in
the New York City area, but activity appears to be limited by supply
constraints--low inventories of both new and existing homes and a
shortage of usable land appear to be constraining unit sales while
boosting prices. Manhattan's office market appears to have stabilized.
Regional purchasing managers report
that manufacturing activity accelerated in August, while price
pressures intensified. Banks report steady loan demand, further
tightening in credit standards, and continued improvement in
Major retail chains report that sales were mixed but, on balance,
slightly below plan in August; however, most report some pickup in
early September. Sales performance varied substantially, with
year-over-year same store sales changes ranging from -2 percent to +10
percent. While some retailers attribute August's weakness to sluggish
sales of hard lines, others indicate that apparel sales were
particularly soft. Most note that hot dry weather hurt sales of lawn
and garden merchandise. However, an industry contact in New Jersey
describes the general sales environment as "gangbusters."
Overall, New York State's tax-free week (on moderately-priced apparel
and footwear) has had no discernible effect on sales--particularly
since a similar tax reprieve was offered during the same week last
Inventories were said to be in good
shape at the end of August--even among those with disappointing sales.
One major discount chain, where sales have been persistently strong,
reports that inventories are a bit lean, especially if the current
sales pace continues. While selling (ticket) prices and merchandise
costs have been stable, most contacts report substantially less
discounting than usual during the third quarter. Most retail contacts
continue to report widespread labor shortages, but no significant
acceleration in wages. However, one large chain reports that it is
giving significant increases to workers at the low end of the pay
scale. Also, in response to labor shortages, a number of New Jersey
retailers are said to be involved in welfare-to-work programs to
recruit and train entry-level workers.
Construction and Real Estate
While housing markets generally remain quite strong, there are some
signs that activity is increasingly hampered by supply
constraints--mainly low inventories of existing homes and a shortage of
usable land. On a seasonally-adjusted basis, single-family permits in
New York and New Jersey continued to climb in July, rising 11 percent
above year-earlier levels. However, multi-family permits retreated
sharply, following a surge in June--they were down 30 percent from a
year ago in July but still up by a hefty 33 percent year-to-date.
Separately, homebuilders in New Jersey indicate that unit sales are
running 15-20 percent ahead of a year ago and that prices are up
roughly 10 percent. Nevertheless, an industry expert anticipates a
drop-off in building activity in 2000, because builders are running out
of approved land. Currently, due to a dearth of inventory, the waiting
time for new homes--as measured by guaranteed delivery dates--has risen
to an unprecedented 11 months.
The market for existing homes is also
tight. A large New York City realtor describes current market
conditions as "unbelievably strong" and indicates that both
unit sales and prices of prime-area co-ops and condos are running 10-15
percent ahead of a year ago. The sharpest price increases are for
high-end properties, and there are continued reports of bidding wars.
Also, homes remain on the market for an unusually short time.
Statewide, single-family existing home sales slowed in July--they were
virtually unchanged from a year earlier, while prices rose by 5
percent, in line with recent trends. In the New York City area, prices
continue to rise briskly, but unit sales are below year-ago levels.
This is widely attributed to a dearth of single-family homes on the
Manhattan's commercial real estate
market appears to have stabilized, as office availability rates were
little changed in July, after falling to cyclical lows at the end of
June. Midtown's rate edged up from 7.2 percent to 7.3 percent, while
Downtown's rate decreased from 11.6 percent to 11.4 percent. Office
rents, which had surged more than 20 percent in 1998, have risen only
modestly so far this year.
Other Business Activity
Regional purchasing managers' surveys suggest some acceleration in
manufacturing-sector growth in August, along with increasingly
widespread increases in input prices. Buffalo purchasers indicate a
strong pickup in production and new orders in August, along with an
upturn in employment levels and further increases in commodity prices.
Those in the New York City area report a further acceleration in
manufacturing activity in August--following relatively brisk growth in
both June and July--along with a sharp acceleration in input prices.
Hotel room rates remained little
changed in July--after posting double-digit gains in each of the
preceding four years, they are running just 2.5 percent ahead of a year
ago in 1999. In contrast, a major newspaper raised its local daily
newsstand price by 25 percent in early September.
Small and medium sized banks in the District report that overall loan
demand was steady over the past two months. Bankers reported stronger
demand for commercial and industrial loans, but weaker demand for
residential mortgages. Refinancing activity also slowed sharply, with
almost two-thirds of the bankers surveyed reporting declines in
activity. On the supply side, bankers report some further tightening in
their credit standards. Bankers reported raising rates on all types of
loans. Four of five lenders reported higher rates on residential
mortgages, and three of four indicated higher commercial loan rates.
Deposit rates also rose, with 60 percent of bankers reporting
increases. Delinquency rates continued to fall in all sectors, most
notably in commercial and industrial financing.
Third District - Philadelphia
Business conditions in the Third
District were improving moderately in September. Manufacturing activity
was advancing. Retail sales rose for the back-to-school period,
although price discounting appeared to increase. Auto dealers said
sales have been steady and at a good pace. Bank lending has been
growing, mainly because of increases in credit extended to small
businesses, but overall loan growth has been slow. Commercial and
residential real estate markets are generally strong, but some signs of
easing have been observed in demand for office space and sales of
Expectations are positive but modest.
Manufacturers forecast continued growth near the moderate pace set in
recent months. Retailers anticipate steady or slightly growing sales.
Bankers expect some gains in business and consumer lending but
anticipate an easing in real estate lending. Contacts in real estate
and construction have mixed views. Most forecast steady conditions, but
some believe residential and commercial markets will soften, especially
if interest rates move up.
Third District manufacturers contacted in early September reported
continued moderate growth. Gains in shipments and orders were noted in
all the major goods-producing sectors in the region. Production
capacity at area plants appeared to be adequate to meet the modest
increase in demand: delivery times and employee working hours declined
slightly from a month ago, and order backlogs fell. Area manufacturers
generally said both input and output prices have been steady; however,
there were reports of higher prices for some raw materials, especially
forest products, farm products, and chemicals used in making plastic
products. Several firms noted persistent labor shortages and rising
wages for both skilled and unskilled workers.
Looking ahead, the region's
manufacturers foresee growth in shipments and orders continuing at
about the current rate. On balance, they expect to step up capital
spending in the next six months but keep inventories at current levels.
Managers at area plants expect to boost employment somewhat, but they
are not scheduling increases in working hours.
Retail sales in the region picked up in the second half of August and
the beginning of September. In addition to good sales of the usual
back-to-school merchandise, merchants reported strong sales of women's
apparel. Store executives said the recent sales rate has been in line
with their plans, but some noted that they had to implement unscheduled
price reductions to meet their sales goals. Inventory levels were
generally described as appropriate for the current and anticipated rate
of sales. Most of the merchants contacted for this report expect sales
during the rest of the fall to be steady or increase slightly from the
same period last year.
Auto dealers reported a steady rate
of sales in recent weeks. Luxury sedans and light trucks have been
selling well, but sales of small cars have lagged. Manufacturers'
incentives remain widespread. Inventories were said to be at desired
levels for most dealers, although shortages of some popular models were
Lending officers at Third District commercial banks generally reported
slow growth in loan volume outstanding during August and early
September. Loans to businesses were said to be moving up at a good
pace, spurred by increased lending to small and medium-size firms. In
contrast, consumer loan demand was described as slack. Residential real
estate lending has been healthy. Reports on commercial real estate
lending were mixed. Some banks indicated that they have recently
increased lending to home builders and property developers, but several
banks have begun to limit real estate lending because of concerns that
property values may have peaked and that property owners cannot support
Bankers in the region expect business
and consumer lending to grow moderately for the rest of the year.
Business expansion plans and consumer confidence levels are
underpinning this growth. On balance, bankers anticipate some slowing
in real estate lending as more cautious lending criteria are applied.
Real Estate and Construction
Commercial real estate markets in the District remain tight. Recent
estimates by property managers put the office vacancy rate at around 10
percent for the region as a whole, down 1 percentage point from the end
of 1998. In some parts of the region, the vacancy rate is even lower.
Leasing activity has been strong and rental rates have increased around
10 percent in some markets since the beginning of the year, but
overall, recent construction has made more space available and helped
to restrain rent increases. Demand for industrial space continues to
grow, as does construction. Industrial vacancy rates have declined, but
rents have been mainly unchanged except for high technology buildings,
which have had significant increases in rental rates.
Although most contacts in commercial
property markets expect conditions to remain healthy through the rest
of this year and next, there are some signs that demand for space may
be peaking. Rents have leveled off in some areas where they had been
rising. Several large corporations have recently negotiated
sale/leaseback contracts. Commercial real estate agents say this is an
indication that owners of buildings believe their values will level off
Home builders in the Third District
generally reported a steady rate of sales in recent weeks. For some
builders, labor shortages, especially of carpenters, have resulted in
construction delays. Building materials appear to be in adequate
supply, but prices have been rising. Builders have been raising selling
prices in an effort to maintain profit margins. Real estate agents said
sales of existing homes have eased from the pace set in the summer but
remain at a good level. Increases in mortgage interest rates have
damped sales activity somewhat, more noticeably for homes in the lower
price ranges. Some real estate agents noted a recent easing in the rate
at which selling prices have been appreciating, which they also
attribute to the rise in mortgage costs. These contacts said home sales
will decline further if mortgage interest rates continue to climb.
Fourth District - Cleveland
General Business Conditions and
The Fourth District economy shows sustained strength in spending and
production, labor markets remain tight, and wage growth has increased.
While greater price pressures are noted at the manufacturing level,
retailers continue to see stable prices.
District temporary employment
agencies indicate steady demand, overall, and report continued
difficulty finding and retaining qualified workers. While there appears
to have been a decline in the demand for general labor, such as entry
level clerical and assembly line production workers, agencies note a
sharp increase in orders for legal and executive secretaries, account
executives, bookkeepers, engineers, and information technology
Tight labor markets have prompted
temporary help agencies to raise wages. For some, wage growth has been
substantial, as in the case of administrative assistants, who have seen
hourly wages rise by about 20% since this time last year.
Union sources also note a shortage of
skilled workers, and higher training and development costs are reported
for steel workers. Wage growth has risen for virtually every industry,
with growth rates ranging from about 3-5%.
District builders are seeing strong third quarter sales, although some
home builders note a modest slowdown from the exceptionally high sales
levels reported earlier this year. Home builders are still reporting
material shortages, and cost pressures are growing in a few key areas,
like drywall, lumber, and insulation. Overall, residential building
material prices are estimated to have increased on the order of 3-4%
during the year. Similar increases are reported for the wages of
residential construction workers. Nevertheless, the profits of
residential builders are thought to be good, and rising, as new home
price increases outpace the rise in building costs.
Reports from commercial contractors
are more mixed than for their residential counterparts, although most
respondents report that conditions are holding steady at a relatively
high level. Materials shortages and rising cost pressures have been
seen, and some commercial builders report rationing by drywall
distributors. Other commercial builders report a higher backlog among
The drought has seriously affected agriculture in the southern reaches
of the Fourth District. Yields from the District's corn and soybean
harvest are expected to vary widely across the District. Some areas of
northern Ohio are reporting yields that are slightly above average,
while in southern Ohio and Kentucky, the corn crop is less than one
half its 1998 harvest. There are reports that some farmers in eastern
Kentucky are cutting corn and soybean crops for cattle feed because of
poor crop conditions, lack of adequate cattle forage, and low crop
Recent rains in some regions of the
District have improved pasture lands, but grazing conditions are still
poor. Farmers in southern Ohio and eastern Kentucky are feeding hay to
their livestock, and some farmers are paring down their herds. Tobacco
is also suffering from the drought, and some areas of eastern Kentucky
are expected to show yields 30-40% below normal.
Manufacturing activity appears to have improved somewhat since July.
New orders growth is generally reported to have picked up in August and
production continues to rise. Commodity prices are rising after having
shown no significant change over much of the year; higher prices are
seen for a variety of metals, plastics, and paper products.
Foreign steel imports remain high.
Still, the demand for steel is high due to strong orders in the auto
and construction industries. Several steel companies in the District
have announced 5-7% price increases on stainless steel products and
many have reduced their price discounting, although prices are still
low relative to their peaks of a few years ago. Industry sources report
no inventory stockpiling in anticipation of a Y2K disruption.
Retail sales continue to show exceptional strength. Sales of apparel
goods are particularly strong. District retailers expect strong sales
to continue into the fourth quarter holiday shopping season. Retail
inventories are low. Moreover, some retailers plan to accelerate their
year-end inventory stocks as a Y2K precaution. The demand for retail
sales space in the Fourth District is reported to be very high. Almost
all retail contacts reported that they have recently expanded their
outlets or anticipate opening new stores soon.
Sales of new vehicles remain brisk.
Most contacts report light or insufficient inventory due to the
strength of this summer's sales, although inventory positions appear to
have improved with the arrival of the new model year. Dealers
anticipate strong sales for the remainder of 1999.
Banking and Finance
Lending activity in the District is steady for both commercial and
consumer loans, with commercial loans holding at a high level. Mortgage
refinancing is down considerably; one large bank reported that
refinancing is now down to 15% of its mortgage business after
accounting for about half of its business in 1998.
The rate for loan delinquencies is
holding at very low levels. Credit quality is good and no change in
credit standards is reported. The spread between borrowing and lending
rates is narrowing in accordance with the observed long-term trend.
Competition for borrowers is still fierce, but some sources report an
easing from a year ago. No identifiable Y2K-related change in customer
deposit behavior has been observed.
Fifth District - Richmond
Fifth District economic growth slipped a notch in recent weeks from the
brisk pace described in our last report. Retailers said that sales
growth was sluggish during much of August, but picked up noticeably
late in the month and in early September. Services providers reported
moderately lower sales throughout the period. In contrast, District
manufacturers recorded higher shipments and new orders, although the
rates of increase were not as robust as those reported in July. At
financial institutions, commercial and consumer lending remained
strong, but mortgage lending tapered off as interest rates on mortgages
rose. Real estate activity remained solid, but some signs of slowing
growth emerged, particularly in Virginia and West Virginia. Wages
accelerated in manufacturing and services, and advanced at a slower
pace in retail. Prices of goods and services changed little. In
agriculture, Hurricane Dennis brought much needed rain to the area, but
drought conditions remain in the southern portion of the District.
Retail revenue growth slowed in the first three weeks of August as
sales of big-ticket items, particularly automobiles, weakened. A
Norfolk, Va., automobile dealer said that exceptionally hot weather was
partly to blame, remarking, "When it's this hot it's hard to get
people on the lot." Shopper traffic in stores throughout the
District slowed considerably and inventories expanded. In late August
and early September, however, shoppers stocked up on back-to-school
apparel and supplies, boosting sales above last year's levels for the
period. Retailers reported little change in employment since our last
report; wage growth slowed and retail prices rose only modestly.
Looking forward, retailers trimmed their optimism regarding sales in
Revenues at service firms fell since our last report; demand for
business and real estate related services was particularly sluggish.
Although most services providers left staffing levels unchanged in
August, more employers raised wages to retain workers. A contact at an
automotive repair shop in Raleigh, N.C., for example, noted, "If I
don't pay up, my workers are going to leave: it's as simple as
that." Prices of services edged higher and most contacts looked
for only modest price increases in coming months.
District manufacturing activity grew at a more moderate rate since our
last report, with some pockets of weakness still evident. Shipments and
new orders both expanded in August, but at slower rates than in July.
Manufacturers of food, tobacco, and industrial machinery products
recorded particularly strong increases in shipments. An industrial
machinery producer in North Carolina said that manufacturing activity
had "picked up" at his plant and reported that he was
starting to see substantial price increases from some vendors. On the
other hand, textile mills continued to report overcapacity and plant
closings. In addition, some manufacturers were expecting housing
markets to slow; a North Carolina furniture maker, for example, said
that because of the anticipated slowdown, his company recently lowered
its estimates for next year's sales and profits. Manufacturing
employment and the average workweek grew at a slower pace, but wages
accelerated. Prices for manufactured goods moved slightly higher.
District bankers reported that commercial and consumer loan demand
remained strong in August, but demand for home mortgages slowed
considerably. An expanding regional economy continued to drive
commercial lending growth and prospects for future commercial loans
remained bright; several lenders noted that they had "good deals
in the pipeline." Consumer lending growth was little changed
despite higher interest rates. In the words of a Rocky Mount, N.C.,
banker, "Rates on consumer loans have gone up but customers are
willing to pay." Borrowers appeared to be less sanguine, however,
about rising home mortgage rates. Higher mortgage rates and, in some
cases, higher home prices, slowed mortgage lending in August. A
Charlottesville, Va., banker described mortgage lending there as
"dead in the water" because fewer borrowers could afford
homes at prevailing interest rates and home prices.
Residential real estate markets have been mixed in recent weeks: while
several "hot" markets persisted in the District, others
showed signs of wilting. A realtor in Washington, D.C., reported
"tremendous activity" driven, in part, by renovation of older
neighborhoods. Realtors said that it continued to be a sellers' market
in Richmond, Va., with homeowners routinely receiving offers above
asking prices in choice neighborhoods. In Roanoke, Va., and Virginia
Beach, however, sales dipped in August. Realtors in West Virginia
reported lower sales prices and volume declines beyond the normal
seasonal slowing. While homebuilders throughout the District generally
indicated little change in the number of building permits issued in
recent weeks, there were fewer complaints regarding shortages of labor
and materials, possibly suggesting some easing in the pace of
residential real estate activity.
Realtors also reported some easing in
commercial real estate markets in Virginia and West Virginia, and no
major changes in markets in Washington, D.C., and Maryland. In
Richmond, Va., however, the market for Class A office space was
tighter, especially in suburban areas. In North Carolina, realtors said
there was a slight slowing of growth in leasing activity. In Charlotte,
new construction activity returned to a more normal rate after a burst
of activity in the first half of this year. South Carolina realtors, in
general, noted only a slight increase in leasing and a little
absorption of vacancies. In contrast, a Columbia, S.C., realtor said
that real estate markets in that area were more upbeat; in his words,
District tourist activity generally strengthened in August, but was
weaker in coastal areas in September as Hurricane Dennis brought high
winds and heavy rain to the region. Bookings for the Labor Day weekend
were sharply lower in resort areas bearing the brunt of the storm,
including Virginia Beach and the Outer Banks of North Carolina.
Extensive property damage and beach erosion were reported in both
areas. However, tourism in the District's northern coastal towns, such
as Ocean City, Md., was little affected by the storm; a contact at a
boardwalk business in Ocean City reported a record turnout for the
holiday weekend. Looking ahead six months, most District contacts
expected tourist activity to remain good.
Demand for temporary employment remained brisk across the Fifth
District in recent weeks. Manufacturing and technology firms appeared
to have the biggest appetites for temporary workers while hiring
requests from retail firms were sluggish. A contact in Columbia, S.C.,
said the hiring scene was similar to last year except now manufacturing
companies are "back in the game." Finding quality workers is
still the biggest challenge for employment agencies, especially since
many firms have been reluctant to increase wages substantially. Wage
increases are expected to continue to be modest over the next six
months. Employment agents reported that District firms plan to add
workers this fall, but at a slightly slower pace than last year.
Cooler temperatures and rains from Hurricane Dennis in early September
brought relief to parched Fifth District farmland in some areas. Soil
moisture levels are now much closer to normal in many areas of North
Carolina and Virginia, although more rain is needed to replenish soil
moisture and ground water in Maryland, South Carolina, and West
Virginia. The rain boosted Virginia's hay crop and may enable more of
the crop to be stockpiled for feed this winter, lessening an
anticipated shortfall. In contrast, the rains came too late to improve
low corn yields, but did raise yields on some late-planted soybeans. In
South Carolina, livestock operators continued to feed their animals hay
where pastures are dormant, and in West Virginia, farmers hauled water
for livestock in areas where wells have dried up.
Sixth District - Atlanta
Reports from contacts throughout the Southeast indicate that the
District economy is operating at a very high level and continues its
moderate pace of expansion. Retailers report sales increases compared
with last year, and the tourism and hospitality sector continues to
post healthy numbers. The pace of District single-family construction
in August was flat compared with July, and new home sales have
weakened, but nonresidential construction is slightly ahead of a year
ago. Manufacturing activity has been mixed recently, while financial
activity continues to expand throughout the District. Labor markets
remain tight, and despite increases in some sectors prices are mostly
Most District retailers reported that sales during July were up
slightly to significantly compared with last year. However, sales
weakened in August on a year-over-year basis. Many retailers attributed
the falloff in sales to an early school start, which shifted purchases
into July. The lone exception was Florida, where retailers received a
nine-day sales tax moratorium, which boosted sales in August. Recently,
the strongest sellers have been women's apparel, children's apparel and
shoes. Most merchants expect third and fourth-quarter sales to be
modestly higher than last year's.
The pace of District single-family construction in August was similar
to July, but new home sales weakened notably. Close to two-thirds of
the builders contacted said that new home sales were flat to down
slightly in August compared with last year. Most contacts report that
home inventories are consistent with sales, except in a few markets
where inventories are deemed too low. According to builders' reports,
third-quarter construction levels will be generally flat, while
Realtors expect home sales to be flat to slightly up compared with last
year. A slight majority of builders expect new home construction in
1999 to exceed 1998 levels.
The pace of District nonresidential
construction is slightly ahead of a year ago but varied significantly
across the different states in the District. Contacts in Florida,
Georgia, and Tennessee report construction is moderately above last
year's levels, while in Alabama, Louisiana, and Mississippi
construction is seen at below year-ago levels. Office, industrial, and
retail markets in the region generally remain balanced. The pace of
District multifamily construction remains similar to our last report,
up modestly from a year ago.
Factory developments are varied among sectors. A machinery producer
notes increasing new orders and is adding to payrolls and lengthening
the workweek. Production is rising for a manufacturer of industrial
chemicals. A firm that makes batteries, flashlights, and other
emergency items expects hoarding as year-end approaches and has plans
to step up production. Shipbuilding in Louisiana is expected to get a
boost from the merger of Avondale Industries with Litton Industries.
Less positively, two major aerospace companies in Palm Beach, Florida,
have announced layoffs amounting to 3,300 jobs by this time next year.
Announcements of apparel plant closings continue to plague the
District. The latest shutdown of a Georgia apparel plant will affect
over 300 workers, but the workers are not expected to remain unemployed
for long. The area's labor markets are tight; a job fair for plant
employees attracted over 30 area employers.
Tourism and Business Travel
The tourism and hospitality sector continues to post healthy growth.
International passenger traffic to Orlando International Airport has
increased by double-digit percentages from last year. Visitors from the
United Kingdom accounted for the major growth in international traffic.
Gambling tax revenues in Mississippi are up 12 percent for fiscal
1998-1999 over the previous fiscal year, and revenues are expected to
rise as recently announced casinos come on line.
Overall loan demand continues to expand at a moderate rate throughout
the District. Consumer and automobile lending remain very strong, while
commercial lending has been slowing somewhat. Mortgage and refinancing
loan demand have continued to slow, mirroring the pullback in housing
activity noted previously. Banking contacts around the District report
that credit quality is good and bankruptcies have continued to abate.
Wages and Prices
Continuing tight labor markets exist in the District, but reports of
accelerating wage pressures are scattered. Contacts in Atlanta and
Nashville say that qualified clerical and sales customer-service staff
are becoming increasingly more difficult to find and retain. Help
wanted advertising in Nashville papers is up by 50 percent from a year
ago, and for the first time in 15 years, staffing companies are running
adds soliciting employees for clients. The Mississippi Gulf Coast
business community is reportedly planning to hold job fairs outside the
state as a means to deal with the labor shortage.
Prices remain generally stable, but
more reports than in recent Beige Books indicate increases. Florida
contacts indicate that some import prices are beginning to firm as
Asian markets recover. Other contacts report that in some parts of the
District health insurance and pharmaceutical prices are rising at
double-digit rates. One contact notes that the cost of raw materials
for chemical producers is rising because of increasing prices of
petroleum based feedstock. Although the shortage of building material
in parts of the District has been alleviated, earlier price increases
appear to be holding.
Seventh District - Chicago
The Seventh District economy continued to expand moderately in August
and early September, despite some slowing in residential housing
activity. Consumer spending remained strong in the region and was in
line with most retailers' expectations. Overall construction activity
remained robust despite a modest softening in the residential segment.
Manufacturing activity appeared to be picking up, led by exceptional
demand for light vehicles. Overall lending activity was brisk despite
the anticipated softening in residential mortgage demand. The
District's labor markets were again tighter than the nation as a whole,
but there were few new signs of intensifying pressure on wages. Crop
conditions deteriorated in Illinois, Indiana, and Michigan, but
remained steady in Iowa and Wisconsin. Hog and grain prices increased,
yet remained at low levels.
Merchants indicated that overall retail sales in August and early
September were good and in line with their expectations, with
"back-to-school" sales performing well. Sales of "hard
goods"--appliances, furniture, lawn and garden equipment--were
reportedly brisk, while sales of "soft goods" were mixed.
Most general merchandisers reported slightly soft sales of apparel, but
some discounters indicated that apparel sales were strong, particularly
women's. Several retailers reported that sales of sporting goods were
very soft. Retail inventories were generally in line with sales
expectations and there were no reports of extraordinary promotional
activities. Casual dining was reportedly strong in the District, with
one contact reporting that total receipts in the July-to-early
September period were up more from a year ago than gains seen in the
first half of the year. Reports from a large auto group suggested that
the strength in light vehicle sales in the District mirrored that at
the national level in August; service sales, which are typically slow
in late summer, were also strong. Upward pressure on retail prices
remained generally subdued, but some contacts indicated that increased
costs for labor and other inputs were squeezing profit margins.
Construction and Real Estate
Overall construction activity appeared to slow somewhat in the
District, largely as a result of softening in the residential segment.
Sales of new and existing homes slowed in August, with many contacts
citing increasing mortgage interest rates as a major contributing
factor. Many contacts, however, also indicated that the market has been
so good for so long that some slowing was inevitable and, perhaps, even
welcomed. Despite slowing residential sales, most contacts felt that
the market remained strong and that fundamentals remain good for
continued strength. Builders continued to report that labor shortages
persisted, particularly for skilled workers, and that lumber and
drywall were also in short supply. Conditions in the business
construction/real estate segment changed little, if at all, from our
last report, with no new signs of slowing.
Manufacturing activity appeared to gain some momentum in August and
early September, even as softness persisted in some industry segments.
As in our last report, production of light vehicles led the way. Light
vehicles were "selling like hotcakes," according to one
contact, a phenomenon that some industry analysts were at a loss to
explain. While conditions remained favorable for light vehicle sales,
one contact expressed reservations about whether such strong sales
levels could be sustained. Automakers remained very aggressive on
pricing, with incentives being offered on some models where previously
there had been none. New orders for heavy trucks softened somewhat in
recent weeks, but production is booked through the first quarter of
2000. One industry analyst indicated that a slowdown would be welcomed,
allowing some manufacturers to perform maintenance on equipment that
had been running virtually nonstop. Orders for construction equipment
were again soft and inventories were reported to be building slightly.
Production of agricultural equipment continued to slow as new orders
remained soft and producers worked down excessive inventories. Steel
production picked up, with capacity utilization running at
approximately 90 percent, and some producers' order books are filled
through the end of the year. Steel producers are benefiting in part
from improving markets abroad and slower imports. Output prices
increased modestly for some manufacturers, most notably for steel and
wallboard, where the industry continued to run near capacity.
Banking and Finance
Overall lending activity remained robust in recent weeks, despite a
noticeable decrease in residential mortgage activity. Household loan
demand softened as the effects of higher mortgage interest rates set
in. Refinancing activity, which had slowed considerably earlier in the
summer, softened even further in August. New mortgage applications,
while "not falling off a cliff," also showed some signs of
easing according to most contacts. At the same time, business lending
activity remained strong and new applications showed no signs of
slowing. One banker attributed the strength in business lending to very
good economic performance and prospects. There were no reported changes
in either standards or terms for commercial loans. At the same time,
the quality of agricultural loans remained a concern for some District
lenders. One banker noted increased competition from nonbank sources in
some commercial lending segments. Banks have been offering higher
interest rates on some deposit products to ensure liquidity in the case
of increased demand for cash that may result from Y2K concerns in the
fourth quarter. The consensus among our contacts, however, was that Y2K
is not so much a computer problem as it is a public perception problem.
Labor markets in the Midwest remained much tighter than the nation as a
whole as worker shortages continued to plague most industries.
Unemployment rates ticked down in July, and claims for unemployment
insurance were running below year-ago levels through August. According
to contacts, worker shortages were again widespread but appeared to be
most severe in construction and information technology occupations. One
contact in casual dining indicated that worker shortages have led to
increased overtime for their employees and that productivity growth had
not been keeping pace with the increased labor costs. While reports of
increasing wages at the upper and lower ends of the wage scale
continued, there were no new reports of intensifying general wage
pressures. Many contacts noted increased use of non-wage incentives
(such as casual dress and flex-time scheduling) to slow the rate of
employee turnover, which had been increasing recently.
Hog, corn, and soybean prices increased during August, but remained at
low levels. Milk prices also increased, buoyed by strengthening cheese
prices. Crop conditions were mixed among District states in early
September. Timely rainfall kept conditions quite favorable in most of
Iowa and Wisconsin during August, while the condition of the corn and
soybean crops deteriorated in Indiana, Illinois, and Michigan as a
result of dry weather that depleted soil moisture reserves.
Nonetheless, the USDA's September projection for corn production in
District states was little changed from the prior month, while that for
soybeans was raised slightly. A large grain processor announced in
early September that it wanted suppliers to segregate crops containing
genetically-modified material from conventional crops, raising concerns
among District farmers that they may be forced to accept lower prices
for some of their corn and soybeans this fall.
Eighth District - St. Louis
The District economy continues to exhibit strong growth. Retailers
report strong back-to-school sales and expect robust sales to continue
through year-end. Manufacturers are still reporting strong growth
despite continuing to have difficulties filling vacant positions. Tight
labor markets aside, a recent employment survey shows that more firms
plan to hire additional workers this fall than did last fall. Home
sales in the District remain strong, although the pace of growth of new
construction has waned a bit. Credit conditions at District banks have
not changed over the past few months. Drought-like conditions are
affecting many of the District's crops, particularly corn and soybeans.
District contacts report that retail sales were up on average between 7
and 8 percent in July and August from a year earlier. Almost all
reported that back-to-school sales either met or exceeded expectations,
with apparel being a very strong seller. The recent hot and dry
weather, however, hampered sales of lawn-and-garden supplies. Contacts
remain very optimistic that sales during the upcoming holiday season
will be strong.
Car dealers report relatively strong
year-over-year sales gains in July and August--in many cases, up more
than 10 percent. The demand for pickup trucks and sport-utility
vehicles continues to outstrip the supply, hampering some dealers'
sales. While vehicle prices, for the most part, remain unchanged,
values of rebates have recently increased somewhat. Dealers remain
optimistic about fourth-quarter sales, assuming they can get the
inventory to meet the anticipated demand.
Manufacturing and Other Business
District contacts report healthy manufacturing conditions. Strong
growth was reported by metal-products manufacturers and automobile
producers. Many firms, especially in the manufacturing, construction
and trucking industries, are still experiencing difficulty filling
vacant positions, which continues to hamper production. To address this
problem, some communities have set up committees--such as the
"Construction Industry Advisory Group" in Kentucky--to try to
attract qualified workers to certain areas and match them with job
openings. District contacts still report no unusual upward wage
Several firms are planning to expand
or move to the District. Four firms, for example, chose to expand or
move to the Louisville and Memphis areas because of their accessibility
to the FedEx and UPS hubs. All told, these firms will create nearly
2,000 jobs. A scattering of downsizings has also been reported. Philip
Morris eliminated another 300 jobs, as domestic demand for tobacco
products falls, and GE has cut employees from its refrigerator and
laundry divisions. Several sources, however, believe that other firms
will quickly absorb many of these workers. Some contacts reported
production suspensions due to energy conservation days during the
recent hot weather.
According to Manpower's latest employment outlook survey, employment
growth in the District's four major cities is expected to be greater
than it was a year ago. On average, 35 percent of firms surveyed in the
Little Rock, Louisville, Memphis and St. Louis regions plan to increase
their employment this fall. One year ago, only 25 percent of firms
surveyed expected to increase their employment. Employment expectations
rose the most in St. Louis and Memphis. The share of firms planning to
reduce employment this fall is small and virtually unchanged from a
Real Estate and Construction
Home sales remain strong throughout the District, with many real estate
agents optimistic that sales will continue to thrive. Year-to-date
residential building permits are above their year-earlier levels in
almost all District metropolitan areas, although the rates of growth
appear to have moderated somewhat. Monthly permits, on the other hand,
declined moderately in many District metro areas in July. Commercial
real estate agents report that demand remains strong. In fact, they
note that speculative building has picked up in many areas, especially
Louisville, which the agents interpret as an indication of continued
growth in this sector.
Banking and Finance
A recent survey of District senior loan officers indicates no change in
standards for approving commercial and industrial (C&I) loans,
although some respondents noted a moderate decline in demand for them.
Credit standards for commercial and residential real estate loans,
consumer loans and credit cards have also remained unchanged. A mild
weakening in demand for real estate and consumer loans was noted.
Meanwhile, banks are still finding it difficult to attract deposits
because of strong market alternatives for customers.
Agriculture and Natural Resources
Although the lack of rainfall continues to adversely affect crops
District-wide, the drought-like conditions are worst in western
Kentucky and western Tennessee. Without additional rainfall,
particularly in these regions, the soybean crop may not reach its full
yield potential. In northern parts of the District, the estimated
average yield-per-acre for corn and soybeans has declined. Overall, the
corn and soybean crops remain in poor-to-fair condition, while the
cotton and rice crops remain in good condition.
Ninth District - Minneapolis
As fall begins, the overall Ninth
District economic activity continues to rise, although natural
resource-based industries are still struggling. The economy remains
vigorous for construction, consumer spending and manufacturing. Many
Minnesota consumers are spending their state government rebate checks.
However, low commodity prices continue to depress farm income and
curtail metal mining. Overall labor markets remain taut and several
businesses report boosting worker pay. Generally, prices remain stable,
but notable increases were reported for healthcare, homes and
Construction and Real Estate
"Everyone keeps expecting things to slow down a little, but it
just isn't happening," says a Minneapolis/St. Paul builders
association representative. A record number of construction permits
were issued during the first half of 1999 in Eau Claire, Wis. Several
apartment complexes are under construction in Sioux Falls, S.D., in
response to low rental vacancy rates. Building contract awards grew 1
percent for the three-month period ending in July compared to last
year's high levels in Minnesota and the Dakotas.
The number of homes listed for sale
in the Minneapolis area for July almost matched a year earlier after
remaining below last year's levels during the first six months of 1999;
the median price was up 11 percent in July compared to a year earlier.
Consumer Spending and Tourism
Consumer confidence remains strong across the district. A tax rebate
payout to about 2 million people in Minnesota at an average of $650 per
check in late August is boosting retail sales. As a result, customers
increased their purchases of high-end electronic equipment, according
to a retailer in St. Cloud, Minn. Meanwhile, a major Minneapolis-based
retailer reported a 13 percent climb in sales for the three-month
period ending in July compared to a year earlier. A mall manager in
North Dakota expects sales in August to finish 4 percent to 5 percent
up from a year earlier. Auto sales in South Dakota are above last
year's levels, but sales in rural areas are slower.
Summer tourism is up in the east, but
down slightly in the west. Hotel and motel occupancy across the Upper
Peninsula of Michigan has been above historical levels for July and
August, according to a tourism official. Tourism in Duluth, Minn.,
increased about 10 percent compared to a year ago. Mount Rushmore and
Badlands National Park were down 3 percent and 8 percent respectively
in July compared to a year earlier. While visits to Glacier National
Park are down 9 percent and some areas around Yellowstone National Park
are down, other Montana tourism businesses report more traffic than a
year earlier, according to a tourism official.
"Full speed ahead," reported a Minnesota manufacturing
industry spokesperson; this comment reflects the state of manufacturing
in the district. Signs of expansion are evident, including a Minnesota
food processor expanding production capabilities. A plastic molding
manufacturer reports sales up 20 percent in the second quarter over the
first quarter. A South Dakota computer component manufacturing plant is
increasing employment. A western Wisconsin cabinet and furniture maker
expects a 15 percent increase in sales over year-earlier levels. In
addition, a Creighton University survey reported manufacturing activity
strong in Minnesota and North Dakota, but softer in South Dakota.
However, a national forestry equipment manufacturer reported weak Ninth
District sales over the last six months.
Mining and Energy
Metal-based mining industries remain depressed with the exception of
platinum and palladium production. Reduced demand for domestic iron ore
has forced reductions in mining output. District iron ore production in
June is 14 percent below year-earlier levels and iron ore inventories
are 12 percent higher than year-earlier levels. Two Michigan iron ore
mines have been shut down for five to 10 weeks to remove some excess
inventory. However, due to strong demand for platinum and palladium, a
mining company is currently building a new, $270 million platinum and
palladium mine in Montana.
Meanwhile, oil exploration activity
remains below year-ago levels with only seven rigs working in North
Dakota and three rigs operating in Montana compared to 11 and nine,
respectively, a year ago. In addition, June oil production was down 3
percent in North Dakota and 9 percent in Montana from year-earlier
Current crop conditions suggest a good harvest this fall. The USDA
reports crop progress near or above the five-year average for corn,
soybeans and wheat for most district states. In addition, crop yields
look promising as the USDA reports the percent of the soybean crop
rated good or excellent is 63 percent for Minnesota and 69 percent for
South Dakota. The percent of the corn crop rated good or excellent is
69 percent for Minnesota and 72 percent for South Dakota.
Based on results of the Ninth
District's third quarter (August 1999) survey of agricultural credit
conditions, 87 percent of respondents reported that farm income is
below normal levels as compared to 80 percent of the third quarter 1998
survey respondents. The third quarter 1999 survey revealed that 90
percent of respondents reported below normal levels of farm capital
spending compared to 72 percent of the third quarter 1998 survey
respondents. In addition, a Farm Service Agency survey of Minnesota
County Emergency Boards found that 8 percent of Minnesota farmers are
at risk of going out of business this year.
Employment, Wages and Prices
Labor markets remain tight, as companies are still searching for more
workers. A credit card company in Sioux Falls, S.D., plans to create
300 jobs over the next two years and a high technology firm in
Wahpeton, N.D., is planning to create over 100 new jobs.
However, finding workers is proving
difficult for many companies. For example, Minneapolis banks report a
teller shortage. The lack of workers is causing employment growth to
slow. Nonfarm seasonally adjusted employment for the district grew 1.5
percent in July compared to a year earlier, well below the previous
four-year average of 2.1 percent.
Companies are boosting wages to
attract employees. A Minnesota labor representative noted a 4 percent
to 5 percent increase in wages and use of overtime, flex time and
cafeteria benefit plans to retain workers. Manufacturing wages grew 3.7
percent across the district for the three-month period ending in July
compared to a year earlier. Wages for hired workers on farms increased
8 percent to 9 percent in July compared to a year earlier.
Overall prices remain stable, except
for a few notable increases. Over 70 percent of respondents to a recent
informal survey of commercial and industrial companies report steady
input and product prices. Several respondents noted that enhanced
efficiency and competition have kept prices low. Auto price increases
have been modest. Significant price increases include health care,
where costs are up 8 percent to 10 percent, according to bank
directors. Gasoline and construction inputs are up; plywood has jumped
more than 50 percent over the past 18 months.
Tenth District - Kansas City
Growth in the district economy continued to slow in August, but the
overall level of activity remained relatively high. Construction
activity slowed further from this spring's robust pace. Retail sales
were flat but are expected to strengthen in coming months.
Manufacturing activity improved, and most district plants are now
operating at high levels of capacity. In the farm economy, another
large harvest is expected this fall, which should continue to keep
grain prices low. Labor markets in most of the district remained very
tight, with extensive reports of labor shortages. Reports of wage
pressures, however, were similar to recent surveys. Retail prices were
flat, while prices for construction materials and some manufacturing
Retailers in the district reported flat sales once more, despite
back-to-school promotions in August. Sales of casual clothing remained
strong, and women's cosmetics enjoyed a busy sales month. Purchases of
home furnishings weakened somewhat following robust sales earlier in
the year. Store inventories continued to expand and are expected to
rise further, as managers are optimistic about future sales growth.
Automobile sales varied across the district in August but remained high
compared with a year ago. Expectations for future vehicle sales were
similar to the previous survey but weaker than earlier in the year.
Vehicle inventories did not appear to be a concern as dealers began the
model year rollover.
District factory activity showed some progress in August following
weakness earlier in the year, with capacity utilization at its highest
level in over a year. Most manufacturing materials remained generally
available, improving overall lead times. Concerns about future material
availability eased slightly from the previous survey, with managers now
expecting few problems. Most managers were dissatisfied with current
inventories and plan to trim stock levels in coming months.
Builders in the district continued to report a slowing in construction
activity, with housing starts steadily declining since the spring.
However, home starts in August remained above year-ago levels.
Expectations for future building activity improved after dropping
sharply in the previous survey. Extensive availability problems
continued for sheetrock and some other construction materials, but some
builders expect these problems to ease in coming months as supply
increases and demand growth slows down. Home sales remained flat in
August, and inventories of unsold homes were largely unchanged.
Mortgage demand has slowed along with the fall in housing starts and
rising interest rates, and mortgage lenders expect demand to continue
Bankers report that loans increased and deposits held steady in August,
boosting loan-deposit ratios. Demand rose for consumer loans,
commercial real estate loans, and agricultural loans. Demand for home
mortgage loans fell. On the deposit side, declines in NOW accounts and
small time deposits were offset by an increase in large time deposits.
Almost all respondent banks increased their prime lending rate last
month, and about half raised their consumer lending rates. Most banks
expect to raise their prime rate and consumer lending rates in the near
future. A few banks tightened their lending standards on agricultural
loans in response to low commodity prices.
After pausing in July, district energy activity in August continued the
rebound that began in April. The rig count rose 9 percent in August and
is now more than 26 percent above the March low. This trend is expected
to continue, so long as oil prices remain around current levels. The
price of West Texas intermediate crude oil rose above $21 per barrel in
August after reaching a low of $11 at the beginning of the year.
Expectations of OPEC holding to production quotas until spring could
keep prices high and rig activity rising in coming months. Natural gas
prices jumped 24 percent in August as supplies struggled to keep up
with strong demand.
The district's corn and soybean crops are in good condition with
above-average yields expected. Another bumper harvest promises to boost
already large supplies and keep prices low this fall. Low feed costs
and stronger cattle prices have boosted profits for the district cattle
industry. With profits up, district feedlots are filling up and cattle
ranchers are expected to begin rebuilding breeding herds. District
bankers report farm loan portfolios have weakened somewhat during the
past year, and with farm commodity prices down, further deterioration
is expected. The farm downturn has also slowed rural business activity,
especially motor vehicle and farm equipment sales.
Wages and Prices
Labor markets remained very tight in most of the district, with
across-the-board reports of labor shortages. Manufacturing firms
continued to face shortages of production workers and also reported
challenges in recruiting professional staff, such as engineers and
accountants. Retailers experienced increased difficulties finding
sufficient sales workers for back-to-school promotions. All types of
construction workers remained extremely hard to find. Overall wage
pressures were similar to the previous two surveys, as a reported rise
in wage pressures by retailers and builders was offset by a slight
easing in manufacturing. Retail prices were flat in August and are
likely to remain so in the near future. Prices for some manufacturing
materials edged up and are expected to continue rising in coming
months. Prices for construction materials rose again, especially for
sheetrock. Further increases are anticipated.
Eleventh District - Dallas
In August and early September,
Eleventh District economic activity expanded at a slightly faster rate
than reported in the last beige book, and most contacts were optimistic
about demand in coming months. Manufacturing activity increased at a
slightly faster rate and retailers reported very good sales growth.
Drilling activity continued to rise, although demand for oil field
services remained tepid. Agricultural conditions were mostly favorable.
Construction activity was unchanged. Credit conditions were stable with
slightly increased loan demand and steady deposit growth. Demand for
business and transportation services was steady and strong.
Prices for more goods and services rose than fell over the past six
weeks. Tight labor markets led to wage increases at some firms in the
glass, concrete, trucking, food and accounting industries. However,
many companies continued to increase recruiting efforts and overtime
rather than wages. One contact reported that due to tight labor
markets, employee preferences have become a more important factor in
firms' office location decisions. Costs for construction labor and
materials have increased 5 to 8 percent this year. One contact reported
a recent leveling off in construction wages, but prices continued to
increase slightly for some construction materials, such as glass,
wallboard, brick and primary metals. Paper and corrugated material
prices rose 6 to 10 percent in the past six weeks. Prices of business
services, oil, refined products, ethylene, polyethylene, timber and
some semiconductors also rose. Refiners reported margins improved but
were still "terrible." Prices of fabricated metals,
hardwoods, motor vehicles, truck cargo services and most retail goods
were steady. Concrete prices fell in a few areas of Texas with
increased competition, but were steady elsewhere. Natural gas prices,
after rising through August, have started to decline with the end of
the summer cooling season. Apparel and some meat prices fell slightly.
Contacts reported that softwood lumber prices, which had been
relatively high for most of the year, fell slightly recently.
Manufacturing activity accelerated slightly in August and early
September. Sales of semiconductors and communication devices picked up
slightly, and contacts reported that demand in Asia continued to grow.
Sales of gasoline, hardwood lumber products, primary and fabricated
metals, some glass products and brick increased over the past six
weeks. Strong demand for gasoline combined with refinery outages to
reduce gasoline inventories for nine consecutive weeks this summer
before they edged back up in late August. Plastics processors were
struggling to rebuild their feedstock inventories after a series of
unplanned outages reduced ethylene production earlier this summer. A
few primary metals contacts said that sales growth has slowed with less
demand from the construction and mining industries. Demand for food and
paper products, wallboard, pine lumber products and concrete was
unchanged over the past six weeks. Demand for apparel, as well as glass
products used in commercial construction decreased slightly.
Demand for business and transportation services was steady and strong
over the past six weeks. Temporary firms said that increased oil prices
have led to increased demand for workers from the energy sector, but
completion of many firms' Y2K compliance projects has dampened demand
for customer service and information technology (IT) skills. However,
legal and accounting firms continued to report strong demand for IT and
Internet-related work, as well as transaction, litigation, bankruptcy
and tax service work. Trucking firms reported "very good"
levels of demand. Airline and railroad contacts reported increased
Retailers reported very good sales growth, with a strong burst in sales
thanks to the Texas tax holiday in early August. Inventories were
generally in line with sales, although one retailer said inventories
were lower than expected because sales were stronger than expected.
Retailers were generally optimistic that sales will continue to be
good, but a few were forecasting slower sales growth. Auto sales
continued to be strong, at about the same level as in July.
Contacts reported stable credit conditions in the month of August with
slightly increased loan demand and steady deposit growth. Lending
growth was boosted by near-record auto sales, while real estate and
home equity lending remained strong. Financial institutions reported
liquidating other investments to fund new loans. While contacts
reported concerns over media hype creating extra demand for cash in
coming months, they said they will have enough cash on hand to meet Y2K
Construction and Real Estate
Construction activity was unchanged over the past six weeks, with many
projects running behind schedule due to labor and material shortages.
Inventories of unfinished new homes rose while sales continued to
increase. Office rents and occupancy rates were mostly stable, but
there was some weakening in certain areas. One contact noted that
increased HVAC and technology requirements in office buildings will
speed the obsolescence of older buildings.
Drilling activity continued to rise in August and early September, but
most new projects continued to be low-risk, onshore, shallow wells and
directed to natural gas instead of oil. Due to the conservative nature
of these drilling projects, contacts report much smaller increases in
demand for oil field services relative to increases in drilling.
Agricultural conditions were mostly favorable. Grain storage problems
were reported in many areas due to good yields and full elevators.
Livestock conditions remained fair to good across Texas. Disaster
payments have helped farmers recover from 1998 losses and most farmers
expect a more profitable year than in 1998. But low commodity prices
are keeping profits in check, and lenders are concerned with both the
number of and credit worthiness of loan renewals for year 2000.
Twelfth District - San
Reports from contacts indicated continued strong economic conditions in
the Twelfth District during the most recent survey period. Service
providers in the District noted an acceleration in growth above an
already rapid trend, while retailers reported moderate increases in
nominal sales. Manufacturing activity picked up in recent weeks,
boosted in part by increasing export demand. Conditions among District
agricultural producers were mixed, as the weather and prices improved
for ranchers but deteriorated further for farmers. Activity in real
estate and construction markets remained at high levels in most areas;
strength was most notable in parts of California and Washington.
Financial institutions reported good conditions, with little change in
loan demand or credit quality.
District respondents expect continued strong national and regional
economic growth in the near term. More than one-half of respondents
expect U.S. GDP to exceed its long-run average pace in coming months,
with the remainder of respondents expecting growth to proceed according
to trend. Accordingly, most respondents expect the national
unemployment rate to remain at or below its current level. A majority
of respondents expect inflation to increase during the next twelve
months; however, a growing number expect inflation to remain stable in
coming quarters. About two-thirds of respondents expect economic growth
in their region to outpace national growth in the year ahead, as
improvements in their region's foreign trade balance augment strong
growth in consumer spending and business investment. In contrast to
previous survey periods, nearly two-thirds of District respondents
expect housing starts to slow in coming months.
Retail Trade and Services
Overall, District respondents reported moderate growth in nominal
retail sales during the survey period. Back-to-school shoppers
reportedly remained cautious, searching for bargains and delaying
purchases to take advantage of post-Labor Day sales. Sales growth
reportedly was strongest at "big box" retailers and at
speciality stores catering to niche markets. Department store sales
were flat relative to last year in many areas of the District, as lower
average selling prices offset higher unit sales. On the whole, District
retailers reported adequate inventory levels and few merchandise supply
Service industry respondents in most
District states reported strong growth. Demand for telecommunications
and cable television installations surged in recent weeks, producing
material shortages and delaying deliveries in some regions. However,
prices for most telecommunications and cable products remained stable
due to stiff competition among providers. Respondents from California
and Nevada reported solid growth in tourism-related restaurant sales,
car rentals, and hotel occupancy rates. In contrast, the tourism
sectors in the Pacific Northwest and Hawaii remained weak relative to
Reports from contacts indicate improved conditions in the District's
manufacturing sector in recent months. Domestic demand for manufactured
products remained strong, and contacts noted a pickup in demand from
East Asia for a diverse set of products including industrial machinery
and equipment, electronic components, wood products, chemical products,
and processed foods. Increased demand reportedly has allowed many
producers to draw down excess inventories and boost capacity
utilization rates at their plants. On the downside, new orders for
commercial aircraft remained weak, and layoffs among major producers
and suppliers continued. Overall, District manufacturers reported few
difficulties obtaining materials or supplies, no capacity constraints,
and stable or declining prices for many key inputs.
Agriculture and Resource-related
District agricultural producers reported mixed conditions in recent
weeks. Conditions for cattle ranchers improved in recent weeks. Export
demand strengthened, prices rose, and low grain prices kept costs down,
generally boosting the profitability of producers in most sectors of
the beef industry. In contrast, unseasonal weather during much of the
summer resulted in poor quality crops and low yields among producers of
grains and fruits and vegetables. For grain producers in the District,
short crops have combined with low commodity prices to constrain
profitability, a problem that reportedly has begun to raise concerns
about the repayment of production and equipment loans.
Real Estate and Construction
In general, residential and commercial real estate activity remained at
high levels in the District in recent months. In the San Francisco Bay
Area, Southern California, and Washington's Puget Sound region, growth
in residential and commercial real estate sales remained robust,
resulting in lower vacancy rates and rising prices. Elsewhere in the
District, respondents noted that higher mortgage rates, rising building
costs, market saturation, and the fear of overbuilding have contributed
to slowdowns in both residential and non-residential construction.
Despite the recent slowdown in some states, building materials such as
drywall, concrete, and structural steel, reportedly remain in short
District financial institutions continued to report healthy loan demand
and generally good credit conditions. Financing remains readily
available for qualified businesses, and stiff competition is
encouraging lenders to offer favorable financing terms. Reports
regarding loan delinquency rates and new loan quality were little
changed in recent months, although contacts expressed some concern
about the quality of agricultural loan portfolios. The ongoing
consolidation in the banking industry has left many experienced
financial-sector workers available for hire, keeping wage pressures in
this industry to a minimum.