Summary
Prepared at the Federal
Reserve Bank of Chicago and based on information collected before
April 24, 2000. This document summarizes comments received from
businesses and other contacts outside the Federal Reserve System
and is not a commentary on the views of Federal Reserve officials.
Reports from the twelve Federal
Reserve Districts indicated that the economy continued to expand
during March and the first three weeks of April. The majority of
Districts reported moderate to strong economic growth, with only
Richmond and Chicago noting some signs that overall growth had
slowed slightly. Consumer spending was strong and retail sales
were in line with most merchants' expectations. Commercial
construction activity generally remained robust, while several
Districts noted softening demand on the residential side.
Factories were running near capacity in some areas, as overall
manufacturing activity was strong. Dry soil conditions were
reported in many areas, but spring planting proceeded at a rapid
pace. Oil drilling activity was up from a year ago.
There were more frequent reports
of intensifying wage pressures as shortages of workers persisted
in all Districts. Increasing input prices were noted in nearly
every region. Many Districts cited wider use of fuel surcharges by
shipping firms and other transportation companies. Manufacturers
in several areas also reported higher prices for petroleum-related
inputs, such as rubber and plastics, as well as for some
nonpetroleum-related inputs. However, there were only a few
reports that increases in input costs were resulting in higher
prices at the retail level.
District reports generally
indicated that recent volatility in equity markets had not had an
impact on activity as of the time of this report, although it had
altered some contacts' expectations.
Consumer Spending
Retail sales generally were strong and in line with merchants'
expectations. Contacts pointed out that year-over-year sales
comparisons were affected by the fact Easter was later this year.
Nearly all Districts reported strong sales of home-related items
such as appliances, furniture, and lawn and garden equipment. The
same was true for light vehicles (especially sport utility and
luxury models), although pockets of softness were noted by Chicago
and St. Louis. Nearly half the Districts reported that apparel
sales were slow, especially men's, with unseasonable weather cited
by many as a contributing factor. Inventories were in line with
sales expectations for the most part. The tourism and travel
industry was strong in the Richmond, Atlanta, and San Francisco
Districts, while Minneapolis suggested that mild weather hurt
their industry.
Prices at the retail level
remained relatively stable in most areas, as competition and
increased productivity reportedly helped keep prices in check.
Philadelphia, Minneapolis, and Kansas City, however, noted more
frequent reports of price increases in recent months.
Real Estate and Construction
Overall construction activity remained strong, although softening
residential demand was reported in many Districts. Much of this
easing took place in the interior of the country, with Cleveland,
Chicago, St. Louis, and Kansas City noting that residential
building had slowed. In contrast, the Richmond, Minneapolis, and
Dallas Districts experienced strong growth in recent months, and
New York reported that activity was "frenzied" in some
areas. Philadelphia noted that the lack of land approved for
development appeared to be limiting the pace of homebuilding.
Existing home sales also appeared to have slowed somewhat, with a
third of the regions noting that the stock of houses available for
sale was quite low. Home prices continued to rise, especially in
the coastal regions, but also in the Minneapolis and Kansas City
Districts.
Reports suggested that
commercial construction activity remained robust in most areas, as
only Dallas reported an overall slowing in its District.
Minneapolis and San Francisco noted strong growth while activity
was mixed in the Cleveland and Atlanta Districts. Office rents
were reported to be rising in the New York and San Francisco
Districts.
Manufacturing
Manufacturing activity generally was strong, but reports were
mixed by both geography and industry. Richmond was the only
District to report a moderation in overall activity, while Boston,
Cleveland, Kansas City, and Minneapolis noted solid gains.
Activity was mixed in New York, Atlanta, Chicago, and Dallas, but
generally remained strong. District reports indicated that light
vehicles and related equipment, machine-cutting tools, steel, and
high-tech hardware industries exhibited significant strength,
while the agricultural equipment, heavy truck, and aerospace
equipment industries were relatively soft. District reports on
primary metals, fabricated metals, and textiles were mixed.
Increasing foreign demand for manufactured goods was cited by
Boston, Kansas City, Dallas, and San Francisco. District reports
suggested that input prices were generally stable, with the
oft-noted exception of increases in petroleum-related input
prices. Philadelphia, however, indicated that input prices had
increased for materials used in lumber, paper, chemical, and
industrial equipment production. Output prices for steel continued
to rise, as did prices for some construction-related materials.
Wallboard prices, however, declined in the first quarter as new
capacity came on stream, but prices remained solidly above
year-ago levels. Cleveland and Chicago noted that factories were
running near capacity while St. Louis suggested that the shortage
of workers was a constraining force on their manufacturing
activity.
Banking and Finance
District reports indicated that business loan demand remained
strong in March and April while, on the consumer side, residential
mortgage lending was relatively soft. Demand for commercial and
industrial loans was reported to be high in 11 Districts, while
Dallas noted a slight softening. Interest rate increases were said
to be delaying some commercial construction projects in Atlanta
and Chicago. Contacts in virtually all Districts reported that
business loan quality remained good, and some noted that banks
were still tightening lending standards. Residential mortgage
lending activity was generally flat to down in most areas as
mortgage interest rates trended higher. New mortgage originations
were down and refinancing activity remained very soft. Some
Districts reported that high consumer confidence kept the demand
for other types of loans (credit card, home equity, etc.) strong.
Credit quality of consumer loans was also reported to be good, and
improving slightly. Banks in most areas continued to report
difficulty attracting sufficient deposits to fund loans.
Labor Markets
Difficulty in finding and retaining qualified employees remained a
common refrain in District reports as worker shortages persisted
in every District, and practically every industry and occupation.
Many Districts noted that the lack of available workers continued
to hamper overall economic growth; and reports of employers
providing retention and referral bonuses, assistance in finding
child care, and health benefits were more widespread. Many
Districts reported particularly severe shortages of workers in
retail trade. In the San Francisco District, a retailer was
reported to have received only 2 applications for over 20 job
openings at a new store, and Atlanta reported that some retail
chains had given store managers the leeway to set local wages
competitively. Employment costs remained under pressure and
appeared to intensify in the last two months. New York, Cleveland,
and Chicago cited significant increases in health care costs as a
contributing factor.
Agriculture and Natural
Resources
Farmers and ranchers in many areas were concerned about low soil
moisture levels. Reports from nearly half the Districts indicated
there were areas of dryness that had adversely affected pasture
conditions and may hinder the development of recently planted
field crops and vegetables. Spring planting in most Districts was
generally proceeding rapidly and running either on or ahead of the
average pace. Chicago and St. Louis reported that spring planting
intentions were quite similar to a year ago. Kansas City and
Minneapolis reported that the winter wheat crop was in good
condition, but Kansas City noted that additional rainfall was
needed to ensure crop development.
The commodity price situation
was mixed. Several Districts reported that farmers benefited from
recent gains in hog and beef cattle prices. But low prices
remained a concern for corn, soybean, and wheat producers despite
some recent increases. In addition, San Francisco indicated that
rising fuel prices had pushed costs higher and squeezed operating
margins. Reports from Dallas, Kansas City, and Minneapolis
indicated that oil-drilling activity was stronger than a year ago.
Dallas indicated that the domestic rig count might be nearing an
upper limit due to availability constraints on personnel and
equipment. Minneapolis reported that the iron ore and palladium
mining industries were at full production, but that low prices and
environmental issues plagued gold mining.
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First District - Boston
Business contacts in the First
District remain upbeat. Retailers indicate their sales are in line
with expectations and manufacturers report "solid"
increases, with revenues or orders for some sectors or products
very strong. Average pay increases remain in the 3 to 5 percent
range, with larger increases for information technology workers
and increased use of a variety of performance-based pay incentives
for a wide range of professional and technical workers. Except for
oil-related products, both manufacturers and retailers report
little evidence of inflation. While a few manufacturers are
raising prices, materials costs and vendor prices are mostly flat
and large manufacturers continue to put pressure on their
suppliers for price reductions. Recent stock market shifts and
interest rate increases are said to be causing modest increases in
uncertainty about the outlook.
Retail
Retail contacts report sales growth during the January through
March period ranging from near-zero to double-digit increases from
year-earlier. While these sales results are mostly in line with
projections, sellers of apparel came in below expectations.
Inventories are at desired levels. Respondents say that generally
tight labor markets and acute labor shortages in selected
occupations make it difficult to retain permanent staff and to
hire replacements. Most retail contacts report that consumer price
inflation is nonexistent and that vendor prices are either holding
steady or, in the case of technology products, declining. Gross
margins are said to be rising slightly because of productivity
improvements.
Retail respondents indicate that
they plan very little expansion of their operations over the next
six months. On the basis of the economy's currently strong
fundamentals, most contacts expect steady growth to continue
through the year 2000. However, in the furniture and apparel
sectors, uncertainty has crept into the outlook for the second
half of calendar year 2000.
Manufacturing and Related
Services
Almost all First District manufacturing contacts report that
recent business is up solidly relative to a year earlier. Close to
one-half of this month's respondents are experiencing double-digit
revenue growth. Companies selling to the semiconductor industry
are reporting extremely strong growth in sales and new orders.
Manufacturers of computer hardware, automotive equipment,
plastics, and medical devices also report vigorous growth. In
contrast, makers of industrial equipment continue to indicate that
orders are sluggish, although one reports that business from the
automotive industry is poised to improve this year. Contacts in a
number of industries indicate that foreign sales have accelerated.
Materials costs are largely flat
even though many manufacturers are paying more for oil-based
products, fuel, and freight. Apart from energy, respondents report
few instances of higher quotes and generally they are pressuring
their suppliers to hold the line or offer more attractive terms.
Manufacturers selling building products, office supplies, plastics
products, and selected consumer items have raised prices in the
range of 2 to 5 percent. Selling prices are steady or down
slightly in the case of information technology companies and those
manufacturing equipment related to biotech and semiconductors.
Firms making machinery and equipment for the aircraft and
automotive industries report continuing pressures to reduce
prices.
Except for a few firms that are
expanding aggressively to meet rapidly rising demand, most
respondents report that employment levels are flat or up slightly.
Most employers report average annual pay increases in the range of
3 to 5 percent. However, the average increase is higher at IT
firms, and respondents in a variety of industries are reacting to
very tight labor markets for professional and technical employees
by increasing signing bonuses, stock options, promotion rates, and
performance-based compensation. Other responses to tight labor
markets include contracting out more engineering and software work
(including overseas) and raising expenditures on equipment and
information systems.
Various manufacturers mentioned
that sharp reductions in stock prices or sharp increases in
interest rates could adversely affect the economic climate.
However, respondents remain upbeat about their revenue and
earnings prospects absent large, unforeseen shocks.
Residential Real Estate
Residential real estate markets in New England are
"stable," but contacts in all states complain about lack
of inventory. Several respondents stated that "there is
nothing on the market," and brokers are
"desperate." As a result, both single-family homes and
condominiums tend to sell very quickly, and many properties
receive multiple offers, some above asking prices. The lack of
inventory has led to price increases in some areas. Prices in
Vermont increased by 10 to 15 percent over the year ending in
first quarter 2000. However, prices in Rhode Island and
Connecticut increased only moderately, and Massachusetts contacts
report modest rates of price increase in the first quarter
compared to the previous year: 6 to 8 percent (annual rate) as
compared to 10 to 15 percent earlier. Most contacts expect market
conditions to remain stable in the next few months, although
changes in the stock market or in interest rates could bring
unexpected changes.
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Second District - New
York
Growth in the Second District's
economy has shown few signs of slowing since the last report.
While wage pressures persist, inflation remains subdued, except in
real estate. Retailers report that cool weather and increased
competition contributed to disappointing growth in same-store
sales in March and early April. While both selling prices and
merchandise costs are said to be stable, transportation costs are
expected to nudge up prices later this year, if fuel costs remain
high. Housing markets remain subdued in upstate New York but are
extremely tight in the New York City area, with stock-market
turbulence reportedly having little effect as of mid-April; home
prices continue to rise at a double-digit rate and construction
workers are in short supply. Office markets have tightened
further.
Regional purchasing managers'
surveys indicate mixed but generally positive conditions in the
region's manufacturing sector in March, along with some moderation
in input price pressures. Finally, bankers report a pickup in
consumer loan demand, further tightening in credit standards and
improvement in delinquency rates.
Consumer Spending
After a strong January and February, retail sales were generally
reported to be on or below plan in March and early April--even
after accounting for the unusually late Easter. A number of
contacts cite cool weather and increased competition as factors. A
major discount chain opened eleven new stores in New Jersey in
March, intensifying the competitive environment and possibly
pulling some sales away from existing retailers. Most major chains
project that same-store sales for March and April combined (which
washes out Easter-timing effects) to be little changed from a year
ago. Demand for home goods has remained fairly brisk, but sales of
seasonal apparel have been sluggish.
Most contacts report that
inventories are generally at satisfactory levels; however, a few
say that if sales of seasonal apparel do not pick up soon, they
will need to begin discounting heavily. Selling prices and
merchandise costs remain flat. Rising transportation costs are
having little impact thus far, because most current contracts with
suppliers were locked in last year; however, if fuel prices stay
high, retailers expect suppliers to begin passing these costs
along later in the year. Most retailers say that labor shortages
are increasingly troublesome, but they are boosting wages only
moderately. One contact, however, notes that health insurance
costs, after declining for years, have turned up sharply in 2000.
Construction and Real Estate
The exceptionally tight housing market in and around New York City
continues to spur construction and drive up prices, though
activity and prices have retreated in upstate New York.
Multi-family permits in New York and New Jersey remained at an
extraordinarily high level in February, reflecting continued brisk
activity in the New York City area. Year-to-date, multi-family
permits in the two states are running 55 percent ahead of
comparable 1999 levels. Single-family permits edged up in February
but were still slightly below the strong levels seen in early
1999.
New York City realtors report
continued excess demand. A leading Manhattan real estate appraisal
firm reports that prices paid for co-ops and condos were up more
than 20 percent in the first quarter, compared to a year earlier.
Separately, a major Manhattan broker reports comparable price
appreciation, and indicates that mid-April turbulence in financial
markets has not spurred any discernible declines in traffic,
sales, selling prices, or bidding wars thus far. One contact
reports that some units have sold for over $1,000 per square foot
this year. Homebuilders in northern New Jersey also indicate
continued frenzied demand, despite the mid-April stock market
swoon; however, one New Jersey realtor reports a drop-off in sales
over the April 15 weekend, despite strong traffic. On the supply
side, builders report that shortages of insulation materials have
been alleviated by a pickup in supply from manufacturers, but that
labor markets remain "extraordinarily tight," forcing up
labor costs.
New York City's office markets
continued to tighten in early 2000, largely due to heavy leasing
from the high-tech, finance and government sectors. Midtown's
availability rate held steady at an historically low level of
close to 6 percent, while Downtown's rate fell to 7.6
percent--from 9.1 percent at the end of 1999 and nearly 12 percent
a year ago. Manhattan office rents continued to rise at a
double-digit rate in the past three months and are up 8% from a
year ago.
Other Business Activity
Labor shortages appear to have intensified further. A leading
employment agency reports that corporate clients are "so
desperate for good people" that some are voluntarily offering
higher fees, in addition to increased wages; they report a
particular shortage of paralegal and legal support workers.
Separately, Wall Street firms report that people are being
recruited away by internet firms.
Regional purchasing managers
indicate mixed but generally positive business conditions in
March, along with some moderation in input price pressures.
Buffalo purchasers report continued strong growth in new orders, a
pickup in hiring and an acceleration in production activity;
commodity price increases remain widespread but stable. Purchasers
in the New York City area indicate that growth slowed in the
manufacturing sector in March, but accelerated in
non-manufacturing industries; price pressures were less intense
than in February but were still fairly widespread among
manufacturers.
Financial Developments
In the latest survey of small- to medium-sized banks, demand
picked up for consumer loans and nonresidential mortgages but
declined for residential mortgages. Refinancing at Second District
banks continued to slow, as has been the trend in the past few
surveys. On the supply side, bankers indicate further tightening
in credit standards--almost a quarter of respondents reported
tightening overall credit standards, while none said their bank
had eased standards. Bankers continued to report higher interest
rates across the board. Finally, delinquency rates decreased in
all loan sectors compared with two months ago, with nearly a third
of bankers noting improvement.
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Third District -
Philadelphia
Business activity in the Third
District expanded moderately in March and April. Manufacturers
posted increases in shipments and orders. Retail sales of general
merchandise were slightly higher than during the same period last
year. Auto sales were solidly above the year-ago pace. Bankers
reported slight increases in loan volume outstanding compared to a
year ago, with most of the gain attributable to commercial and
industrial loans. Firms in a variety of industries continue to
indicate that finding and retaining employees is difficult. While
skilled workers are most in demand in service industries, some
manufacturers and construction companies indicated they have been
unable to fill their needs for both unskilled and skilled labor.
Reports of rising prices have increased in both the industrial and
consumer sectors.
Looking ahead, most business
contacts in the Third District expect an easing in growth,
although retailers predict an improvement in sales. Manufacturers
forecast only steady rates of shipments and orders, on balance,
during the next six months. Retailers expect an upturn in sales
once the spring shopping period gets under way. Auto dealers
foresee a nearly steady rate of sales. Bankers anticipate slower
growth in business lending as a result of greater caution on the
part of lenders as well as borrowers. Bankers expect mortgage
lending to decline.
Manufacturing
Third District manufacturers reported moderate increases in
shipments and new orders in April. While only a few producers of
nondurable goods posted gains, most makers of durable goods saw
increased demand for their products. Rising shipments and growth
in orders were relatively more common among producers of lumber
products, fabricated metal products, and industrial and commercial
equipment. Overall, order backlogs and delivery times at
industrial plants in the District have been steady. Firms in a
wide range of manufacturing industries continue to report
difficulty finding and retaining both skilled and unskilled labor.
Third District manufacturers
have trimmed their forecasts recently. Earlier in the year they
were predicting gains; currently, the balance of opinion is that
orders and production will remain at about the current rate during
the next two quarters. Despite their forecast of steady business
conditions, area manufacturers expect prices of both the materials
they purchase and the products they make to remain on an upward
trend.
Retail
Reports from Third District retailers indicated that retail sales
were up moderately in March and the first half of April compared
to the same period a year ago. Discount stores, furniture and home
furnishings stores, and jewelry stores posted relatively strong
year-over-year increases. Clothing stores had modest gains.
Results at department stores varied, but on balance, these stores
had year-over-year gains of around 4 percent, in current dollars.
Retailers believe the late Easter this year has shifted consumer
purchasing to the end of April, and they expect better sales at
the end of the month. Cold weather was also cited as a cause of
lower than expected sales in early April, especially for spring
apparel.
Auto dealers indicated that
sales have been strong in recent weeks. Nearly all the dealers
surveyed for this report said sales in March and early April
exceeded sales in the same period a year ago by significant
amounts. Extensive manufacturers' incentives were said to be
supporting the high rate of sales. Dealers indicated that these
incentives, in the form of rebates and low-rate financing, were
offsetting any effect that might have been expected from recent
increases in consumer loan rates at financial institutions.
Dealers' earlier concern about slow sales of new large sport
utility vehicles has receded as sales of those vehicles have risen
recently. Dealers foresee some slowing in sales during the rest of
the year. They expect sales for all of this year to decline a few
percent from last year's level.
Finance
Loan volume outstanding at Third District banks has edged up in
recent weeks, mainly because of growth in business lending. On
balance, banks in the District were boosting commercial and
industrial lending. Bankers reported that business borrowers were
implementing their expansion plans for the year, although a few
bankers noted that some firms with plans to develop Internet
ventures were delaying those initiatives and putting them under
review.
Consumer lending was generally
sluggish, with most banks reporting flat to slightly declining
loan volume outstanding in March and April. The sluggishness in
consumer lending extended to credit cards, home equity loans, and
indirect lending. Bankers also reported that home mortgage
refinancing activity has dropped as mortgage interest rates have
risen. In contrast, purchase money mortgage lending has been
rising, on balance, at banks in the region.
Commercial bank lending officers
anticipate that growth in business lending might ease as both
lenders and borrowers become more cautious about leverage ratios
and debt service burdens. However, bankers do not see any
indications at this time of a slowdown in business activity in the
region. Financial institutions involved in mortgage lending expect
demand for purchase mortgages to slow eventually in response to
recent increases in interest rates. Some banks that lend to
builders and developers indicated that shortages of construction
labor and land approved for development appear to be limiting the
pace of home building in the region.
Wages and Prices
Manufacturers reported continuing increases in prices for raw
materials and some manufactured inputs. The increases included but
were not limited to energy resources and petroleum-based products.
Sectors in which increases in input costs have been common are
lumber products, paper products, chemicals, and industrial
equipment. As costs in those sectors have risen, a growing number
of firms have begun to charge more for the products they make. In
contrast, manufacturers of apparel and processed foods indicated
that their input costs have been steady and foreign competition
has impeded their ability to raise prices for the goods they
produce.
Retailers have also indicated
that they are paying more for some goods at the wholesale level.
They have generally avoided passing the full increase on to final
selling prices, but the combination of increases in the costs of
some goods and rising labor costs are leading a small but growing
number of stores to raise prices selectively.
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Fourth District -
Cleveland
Growth in economic production in
the District is moderately strong, with continued low rates of
joblessness and steady growth in wages. The prices for consumer
goods and construction materials are stable. However, the prices
of steel and health care are increasing.
Strong demand for temporary
workers continues unabated and contacts reported a significant
increase in unfilled customer orders over the past two months.
Contacts reported that while demand for temporary workers has not
increased substantially, it is becoming increasingly difficult to
find and retain qualified workers. Contacts noted only small
increases in wages. Demand continues to be especially strong for
administrative assistants, legal secretaries, and workers with
technical and computer skills. Clerical, payroll, manufacturing,
and production workers are also in high demand. Contacts also
noted a growing trend for firms to retain qualified temporary
workers on a permanent basis, with some firms increasingly using
temporary employment agencies to find full-time employees. Strong
demand for temporary workers is expected to continue into the near
future.
Unions reported that wage growth
remains fairly constant at an annual rate of about 3 percent for
most industries and slightly higher in those requiring
higher-than-average skill levels. Driven by surging pharmaceutical
costs, health-care premiums have reportedly increased between 6-10
percent since last year.
Construction
Some District homebuilders reported a significant slowing in
housing sales. They attributed this to recent declines in equity
prices for buyers at the high end of the market and higher
interest rates for those at the low end. While sales have not
fallen dramatically, most contacts regard the slowdown as coming
at an inopportune time; March, April, and May are usually peak
selling months.
Residential builders reported no
significant changes in labor and materials costs, although drywall
prices are expected to fall in the near term as two new production
facilities in the District add to the supply.
Commercial building activity
remains mixed across the District. Contractors involved in
publicly funded construction continued to report substantial
growth. Office construction continues to be at a high level,
particularly in the downtown sections of the District's larger
cities, but not at the brisk pace of public-sector projects.
Retail space construction is at the same level as last quarter.
Warehouse and industrial construction has declined, but
contractors expect stronger conditions by the summer.
Industrial Activity
The demand for steel products is strong, especially by the
automobile-manufacturing and construction sectors. All contacts
reported strong sales in the first quarter and strong orders
booked for the second quarter. Most companies are operating at
full capacity to meet the demand. Most contacts reported price
increases of $20-$25 a ton (equivalent to a 5-6 percent rise) for
hot- and flat-rolled steel products. For some companies, this is
the second increase this year. Other companies plan to increase
prices again in the second or third quarter. One steel company
announced a 10 percent increase in finished goods inventory, but
other contacts reported no change in inventory.
Purchasing managers in the
District reported higher commodity prices in March, especially in
primary metals, petroleum products, and paper products. Production
levels increased slightly, while new orders remained at roughly
the same levels as last month. High gasoline prices are expected
to cause a steep decline in sales of heavy trucks, but current
production and sales are still good.
Consumer Spending
Most District retailers reported modest sales growth in March and
April. In general, specialty retailers fared better than their
department-store counterparts, although higher-end department
stores continued to perform particularly well. General
merchandisers reported steady sales growth across all product
lines, although overall growth in apparel sales did not match the
high rates of the first quarter. Home furnishings and furniture
sales were particularly strong, with year-over-year increases on
the order of 10-12 percent. Retailers noted no significant cost
pressures from suppliers, though some in the grocery segment
reported that some shipping companies have assessed surcharges for
increased fuel costs. At the retail level, most have noted an
inability to increase prices due to competition.
After record sales in 1999,
District auto dealers reported that brisk sales of new vehicles
continued into the first quarter. Most dealers reported between 5
percent and 15 percent year-over-year sales growth. District
dealers were optimistic that strong sales would continue over the
second quarter, and they expect a very robust summer. March sales
are said to be particularly strong, while April sales are mixed
relative to March. The current inventory position of District
dealers is ample, and no shortages were reported. Despite the
continued strength of new car sales, sales of used vehicles have
also surged in 2000.
Agriculture
Corn planting is reportedly 28 percent complete in Kentucky. (This
compares to 17 percent planted by April 21 last year and 19
percent planted by April 21 on average over the past five years.)
In Ohio, corn planting is scheduled for the last week of April;
however, rain may delay planting by one week. Some expansion is
reported in Ohio livestock herds. Crop prices are low compared to
a year ago, but prices for hogs, pigs, and beef have increased
from low levels in the past months. In agricultural labor markets,
wages have been increasing in line with other industries and with
inflation. Most farmers are working hard to attract seasonal
workers. Tobacco planting has declined due to the recently
announced Federal tobacco quota cuts of 45 percent, the largest
drop in the tobacco quota in a decade.
Banking and Finance
Commercial lending activity in the District is described as
strong. On the other hand, the demand for consumer loans is down.
Some contacts reported that this may be due to competition from
credit unions and manufacturing finance corporations. Although
many sources described their credit quality as "high,"
some banks reported a very high loan-to-deposits ratio, which is
causing them to lend less. Most bankers reported that they are
expecting to attract more deposits in light of the recent
volatility in the stock market. At this time, however, they have
not observed unusual increases in deposits. The reported spread
between borrowing and lending rates is small.
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Fifth District -
Richmond
The Fifth District economy
remained vibrant, but expanded at a slightly slower pace in March
and April as growth in services and manufacturing activity eased
somewhat. Manufacturing activity remained relatively strong and
shipments expanded at a solid clip, although the growth of new
orders fell sharply. At District retail establishments, sales
gains were robust, but revenue growth at resorts and utilities was
sluggish, in part because of higher gasoline prices. Residential
real estate activity expanded at a strong pace since our last
report while commercial real estate activity held steady. Bank
lending generally advanced modestly in recent weeks, despite slack
growth in mortgage lending. In District labor markets, employment
and wages increased sharply at retail establishments, but grew
only moderately in manufacturing. On the prices front, District
manufacturers noted higher prices for oil and steel, but business
contacts in general continued to report only modest price
increases for goods sold.
Retail
District retailers reported stronger growth in customer traffic
and sales in the weeks since our last report. Improved weather in
recent weeks was cited by a Columbia, S.C., retailer as a primary
reason for stronger than normal growth in sales of building and
garden supplies. Retailers' inventories increased over the period,
and retail prices grew more slowly. In labor markets, retail
employment bounced back from softness earlier in the year, and
wage pressures maintained upward momentum.
Services
Service sector revenues grew at a slower rate since our last
report. Higher prices for gasoline and air travel contributed to a
decline in hotel bookings, according to a hotelier in the District
of Columbia. In addition, revenues at electric and gas utilities
also fell as the weather warmed. Employment in the services sector
rose at a moderate pace, while average wages grew faster than in
the previous two months.
Manufacturing
The pace of District manufacturing activity moderated in recent
weeks. Manufacturers' shipments continued to expand at a solid
rate in March, but new orders growth slowed
considerably--particularly in the food, primary metal, and
fabricated metals industries. Manufacturing employment was little
changed since our last report, while average workweek declined.
Wages advanced at a modest pace.
Reports of higher raw materials
prices were more widespread in recent weeks. Several tire and
rubber manufacturers noted that higher oil prices had driven their
costs higher. The director of sales operations at a food
processing plant in Virginia said that higher gasoline prices were
having a "significant impact" on his distribution costs.
In addition, an industrial machinery and equipment manufacturer in
Raleigh, N.C., reported steel prices had risen
"terribly," contributing to a 25 to 40 percent increase
in his costs of raw materials over the last twelve months.
Finance
District bankers reported only a modest increase in lending
activity since our last report. Commercial lending was moderately
higher, bolstered by a generally strong District economy and, in
some cases, demand for loans to pay tax bills. A commercial lender
in Richmond, Va., reported lending to be "steady as she
goes," noting that businesses had "adjusted well"
to a higher interest rate environment. Consumer and mortgage
lending activity, however, was mixed. A Charlotte, N.C., lender
reported that continued robust economic growth had contributed to
buoyant consumer loan demand, but a Greenville, S.C., banker noted
that sharply higher gasoline prices and high debt levels had
damaged consumer confidence. The Greenville, S.C., lender also
noted relatively weak demand for home mortgages in his area.
Real Estate
Residential real estate activity advanced at a solid pace in March
and April, although, in a few areas, sales lacked the sizzle
normally seen at this time of year. Both builders and realtors
reported that Northern Virginia continued to be a hotspot, with
customer traffic there described as "higher than ever."
Real estate activity was also strong in Myrtle Beach, S.C., where
contacts said that customer interest in upper-end homes had picked
up, and in the eastern panhandle of West Virginia, where builders
indicated that speculative building rose in response to strong
demand for homes in the lower price ranges. Home sales in
Baltimore, Md., however, were reported to be lower, and realtors
said that Virginia residential markets were "softer" in
Richmond and in the Tidewater area. In contrast, realtors in the
District of Columbia and in the surrounding Maryland suburbs
reported markedly higher prices for upper-end homes.
Commercial real estate activity
changed little since our last report. In Baltimore, Md., Class A
office space availability tightened "a bit," while
vacancy rates continued to fall. Commercial realtors in Charlotte,
N.C., reported little change in leasing volumes and rents, but
said that substantial amounts of new office space were being added
downtown and that industrial leasing activity had started to pick
up. Industrial leasing activity was also active in the Research
Triangle area of North Carolina. Class A office space tightened
slightly in Raleigh, N.C., and retail rental rates rose. Rental
rates for office space were said to be higher in Columbia, S.C.,
in part because of a "flood" of telecommunications
businesses moving into that locality. Commercial markets in
Northern Virginia remained strong; a realtor there told us that
premiums were being paid by office building tenants in order to
secure lease renewals.
Tourism
Tourist activity strengthened in March and April. Contacts at
District resorts reported that bookings for the Easter holiday
were much stronger than a year ago. One hotelier on the Outer
Banks of North Carolina told us that the beaches were packed, in
part because Easter occurred later this year. In addition,
contacts attributed increased activity at resorts to the increased
popularity of "spring break" vacations that take
advantage of the lower, off-season room rates. In Washington,
D.C., unseasonably warm weather attracted record crowds of over
700,000 visitors to the National Cherry Blossom Festival in late
March and early April.
Temporary Employment
Demand for temporary workers strengthened further in recent weeks.
Contacts at temporary employment agencies said that clerical and
computer-skilled workers remain at the top of the wish list for
most employers. However, in urban markets, contacts said that
conditions were so tight and the pool of available temporary
workers so thin, that their clients would settle for workers that
simply showed up at the job. In the Carolinas, light industry
picked up recently, which led to increasing strains on already
tight labor markets. In contrast, a contact in a rural area of
West Virginia said that there were abundant workers in that area
and that they were increasingly computer-savvy. He attributed
labor-market slackness to sluggish local economic conditions. In
general, wages for temporary workers continued to rise at a
moderate rate.
Agriculture
Abundant rain in recent weeks left District farmland in generally
good condition for spring tillage and planting. The recent rains
delayed activity in some areas, but planting progress of field and
vegetable crops was ahead of schedule in most areas. The rainfall
also benefited pastures, particularly in Virginia and West
Virginia, where livestock producers moved livestock onto pastures
earlier than normal. Cold weather in mid-April caused scattered
damage to fruit trees in West Virginia but fruit prospects
remained generally good; apple trees were in bloom 10-14 days
earlier than normal. Although crops were developing well, District
agricultural producers remained concerned with low farm commodity
prices.
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Sixth District - Atlanta
Southeastern economic activity
expanded moderately in early spring, and contacts are mostly
optimistic about future prospects. Merchants' sales have met or
exceeded expectations, and retailers anticipate that
second-quarter sales will better year-ago numbers. Residential
sales and construction have slowed in most markets, but commercial
construction has picked up. Although overall factory output has
been soft recently, new contracts are aiding some producers. Loan
demand remains strong throughout the District except for housing,
and the outlook for the tourism sector remains positive. Labor
costs are still under pressure because of continued labor scarcity
throughout the District. Contacts report increasing prices for a
number of commodities and services.
Consumer Spending
According to District retailers, a late Easter this year
diminished March sales and shifted purchases into April. Most
retailers opined that in early April sales were up slightly
compared with a year ago, and recent sales have met or exceeded
expectations. Inventories are balanced. Children's apparel,
cosmetics and shoes are selling well, while men's apparel sales
have been weak. Most merchants anticipate that second-quarter
sales will exceed year-ago levels.
Construction
Reports from builders around the District indicate that
single-family construction activity in March and early April
varied considerably from market to market compared with a year
ago. Overall, new home sales weakened slightly from March to early
April on a year-over-year basis. Reports from Realtors also noted
that home sales in March compared with last year varied, but home
sales in early April were weaker than sales a year ago. Realtors
and builders agree that activity is slowing in their markets.
Looking ahead, the majority of contacts anticipate home sales and
construction levels during the second and third quarter to fall
below last year's levels.
Overall nonresidential
construction picked up recently; however, activity has not been
uniform across the District. Construction reportedly rebounded
strongly in Georgia, Mississippi and Tennessee, while activity in
Florida also improved from the first of the year but remained
below year-ago levels. Construction growth continued to accelerate
in Alabama, while commercial construction slowed somewhat in
Louisiana.
Manufacturing
Reports from the industrial sector were mixed. Some factory
contacts note delays of capital purchases because of increases in
interest rates. Other industry spokesmen report a slowdown in
"speculative" technology investment. A tool manufacturer
and a sewing plant in Tennessee, and an electronics producer in
Georgia, are shifting jobs to Mexico in order to remain cost
competitive. Higher energy prices are also affecting the factory
sector. A company manufacturing truck tractors notes declining
orders, forcing cuts in production and layoffs. Conversely, in
another part of the District, companies manufacturing equipment
used in drilling rigs are expanding and reporting new contracts. A
District shipyard is undertaking its largest expansion ever on the
strength of new contracts. The region's pulp and paper industry is
experiencing improving activities, based partly on the strength of
exports, according to one contact. A health care product producer
reports slowing activity as customers work down inventories built
as a hedge against possible Y2K problems.
Tourism and Business Travel
The tourism and hospitality sector continues to post strong
numbers and the outlook is for more of the same. Travel to south
Florida is robust with brisk airline, hotel and car rental
business. Bookings at hotels and resorts continue to equal or
better last year's record pace, and summer bookings have managers
optimistic. Along the Mississippi Gulf Coast, recent revenues
reported by casinos were the second highest since gaming began
there. Officials are concerned that Opry Mills, a new
entertainment and shopping center opening in Nashville, will have
difficulty finding 3,500 employees needed to staff the center
because of the area's low unemployment rate.
Financial
Bankers throughout the Southeast indicate that overall loan demand
remains strong, and there is little evidence of a slowdown in
planned business investment. Some financial institutions have
stopped absorbing interest rate increases and are passing them on
to corporate borrowers. This is beginning to hurt some commercial
projects. There are reports that recent financial market
volatility has resulted in delays of planned public offerings by
some District companies. A few lenders have implemented slight
increases in consumer loan rates, but current consumer and
automobile loan demand remain unaffected. Residential lending and
refinancing demand remain weak throughout the Sixth District, and
overall credit quality is said to be healthy.
Wages and Prices
Tight labor markets continue to impact the District, although the
more frequent reports of increasing wages remain scattered.
Employers continue to rely on overtime to fill employment gaps.
Local retail managers in some chains reportedly have been given
authority to set wages to compete locally. Other firms are
offering substantial signing bonuses to attract scarce labor.
Contacts are concerned about finding staff for business expansions
and are offering incentives, such as subsidized day care and
flexible work hours, to retain current employees.
More contacts than before report
increasing prices. Stainless steel, copper, plastics, and lumber
prices are increasing. Newsprint and asphalt prices have also
risen recently. Many companies polled, from furniture movers and
garbage haulers to air-freight firms, say that they are adding
fuel surcharges to prices because of higher fuel costs.
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Seventh District -
Chicago
The Seventh District economy
continued to expand in March and April, with some reports
suggesting that growth may have slowed slightly. Consumer spending
remained strong, although some pockets of softness were reported.
Demand for new and existing homes eased modestly, although most
contacts still described the housing market as healthy. Production
remained near capacity in some manufacturing sectors, but softness
endured in other key industry segments. Loan demand remained
solid, and lenders reported that asset quality on both business
and consumer loans was good overall. Employers in the District
again struggled to find and retain workers, and there were a few
new reports of intensifying pressure on employment costs. Dry soil
conditions persisted in many areas, but spring planting proceeded
at a rapid pace.
Consumer Spending
Consumer spending in March and April was largely in line with
retailers' optimistic expectations, as consumers remained very
confident about the economy. The strength was not universal,
however, as a few merchants noted soft sales, high inventories,
and increased promotional activities. Discount stores appeared to
fare better than general department stores. Sales of apparel,
seasonal items, home and garden goods, electronics, and
consumables were reported to be strong. Most national chains noted
that sales growth remained strong in the Midwest, although not as
strong as on the coasts. Many contacts noted that unfavorable
weather hampered sales of traditional spring items, but they
expected to recoup any lost sales as the weather improved. A
contact in the casual dining business reported that growth
remained strong nationwide. Reports on light vehicle sales in the
District were mixed. Some contacts noted continued strong demand,
especially for luxury models, while others indicated that sales
were down substantially. One large dealer group, noting a drop off
in showroom traffic and service orders, said that the
"mood" of their customers had changed in recent months.
Construction and Real Estate
Residential construction remained relatively strong, according to
builders, but two national reports showed softening in the Midwest
from a year ago. A national survey of homebuilders showed a
notable drop-off in its Midwest housing activity index in April,
and a government report indicated that the region's housing starts
were down sharply in March. Most of the weakness in the housing
starts, however, was concentrated in multifamily units. Contacts
were quick to point out that the multifamily segment was much more
volatile than single-family starts. Still, neither participants in
the national survey nor our contacts in the District suggested
that the new home market was weak. Sales of existing homes slowed
somewhat in the first quarter of 2000 from a year ago in some
areas. However, realtors noted that average days on the market
were down slightly and the ratio of selling-to-asking price
remained very high, indicating continued strength in the market.
Commercial construction remained fairly strong, although contacts
suggested that interest rate increases are of greater concern on
the business side than on the residential side. A report from one
of our largest metro areas suggested that hotel development plans
were being delayed by financing concerns. Lenders nationwide have
grown cautious of the amount of new space that has already been
developed in recent years and have tightened standards and terms,
according to this report.
Manufacturing
Overall manufacturing activity was again strong in March and
April, but results were mixed by industry segment. There was no
ambiguity in the auto sector, however, as the industry remained
"red hot" according to contacts. Nationwide, sales of
light vehicles were higher in the first quarter of 2000 than any
other quarter on record. Demand for office furniture was up
significantly from last year and backlogs were at record levels,
according to one manufacturer. Production was nearing capacity in
the steel industry as last year's huge inventory overhang has been
worked down. Demand for machine-cutting tools, buoyed by
increasing global demand, was reported to be strong and improving.
Producers of construction materials (wallboard and cement) were
running nearly "full out" as excess demand was being
satisfied by increasing imports. Wallboard prices were reported to
be down about 6 percent from December, but remained nearly 11
percent above year-ago levels. The demand for heavy equipment was
mixed, as the soft agricultural equipment sector improved somewhat
while new orders for heavy trucks fell off "sharply"
from a year ago. Input costs remained relatively flat for most
manufacturers, as did output prices, as many companies continued
to fight for market share in their respective industries.
Banking and Finance
Bankers reported that loan demand remained strong and overall
growth was more or less steady. For many smaller community
lenders, loan demand was not the problem, but funding those loans
was. Some agricultural and community lenders continued to fund
loans through borrowing, still unable to attract sufficient
deposits. Several bankers noted a surge in home equity lines of
credit, partly offsetting slow refinancing activity. A contact at
a large money center bank noted that consumers' credit usage was
increasing, but that they were paying down their balances faster
and overall consumer credit quality was improving. Demand for
commercial and industrial loans remained robust, while a few
contacts reported that commercial mortgage lending activity had
slowed somewhat from last year. One banker noted that banks were
still lending to existing customers that wanted to expand, but
were turning away new customers seeking funding for speculative
commercial building projects. Commercial credit quality was
generally described as good and steady, but one banker added that
even banks that had relaxed lending standards "(weren't)
being punished because the economy is so good."
Labor Markets
Employers in the Midwest continued to struggle to find and retain
workers as the region's labor markets remained much tighter than
the nation as a whole. Shortages of workers persisted in
practically all areas, industries, and occupations. Seventy
percent of respondents to a March survey of Michigan retailers
reported that overall customer service was suffering as a result
of worker shortages. Contacts at smaller and community banks noted
that wage competition from national banks with a presence in their
areas made it increasingly difficult to retain workers, especially
part-time tellers. One contact noted that health care companies
were using signing bonuses more frequently to "raid"
their competitors. Another contact noted that benefit cost
increases were significant, particularly for prescription
coverage, and a nationwide staffing service in one of the
District's largest metro areas reported that wages had increased
roughly 15 percent from the beginning of the year. Most contacts,
however, suggested that broad-based employment cost increases
remained modest and steady.
Agriculture
Beef cattle and hog prices were a bright spot for District farmers
in recent weeks. During the first half of April, hog prices were
70 percent higher than a year earlier while beef cattle prices
were up 10 percent. A report released by the USDA at the end of
March indicated that hog numbers were down from year-ago levels in
each District state except Iowa, which registered a small
increase. Though recent rains improved soil moisture conditions,
some areas in the District remained quite dry. However, the dry
conditions enabled corn planting to proceed at a pace considerably
quicker than normal through April 24. A recent USDA survey
indicated that the number of acres planted to corn or soybeans in
the District will be about the same as last year, and that farmers
will modestly reduce the acreage planted with genetically modified
seed.
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Eighth District - St.
Louis
The District economy continues
to grow at a moderate pace. Contacts report growth in employment
and sales, although many firms still face tight labor markets.
High fuel prices have bitten into several industries' profits.
Sales of existing homes have continued to slow in some regions in
the District, while in other regions housing demand continues to
be strong. Loan demand has increased modestly, but banks continue
to struggle to attract deposits. A mild increase in some crop
prices has been noticed lately.
Manufacturing and Other
Business Activity
Contacts report sound overall business conditions in the District,
with output remaining high and demand growing. The high-tech
industry, for example, continues to flourish, creating numerous
skilled jobs in the District. A provider of cable-based Internet
services is opening in Louisville, and a firm that services
Internet retailers is opening in Memphis; together they will
create about 1,450 jobs. Southwestern Bell Wireless will create
500 jobs by year-end at a new call center in Little Rock.
A few contacts, however, have
noted a slowdown in demand for their products over the past few
months. For example, the demand for durable goods, such as
automobiles and home furnishings, has tapered off slightly. The
textile industry continues to weaken, with several more clothing
manufacturers moving their jobs abroad. A printing plant in
western Tennessee closed, eliminating 425 jobs.
Markets for skilled and
unskilled labor remain tight; consequently, reports that firms are
unable to expand production are becoming more frequent. A District
steel mill, looking to increase production, reports that it cannot
find the 100 workers it needs. Problems with worker retention and
absenteeism have forced an automotive parts producer to shut down
all non-critical production lines. The health care and hospitality
industries are being hit particularly hard by the labor shortage.
Nurses and pharmacists are very scarce, leading many hospitals to
raise wages to attract such workers. Casinos, restaurants and
hotels report staffing problems as well, with worker vacancy rates
reaching 25 to 35 percent in some cases.
To address this problem, firms
are using creative techniques, which include recruiting over the
Internet and outside of their local areas, to find workers. Also,
to attract workers, the hospitality industry has begun offering
benefits, such as pension plans and health insurance, and wages
that are $2 to $3 above the minimum wage. To retain workers, some
employers are paying bonuses to workers who stay on the job more
than 90 days. All told, however, overall wage pressures remain
moderate.
High fuel prices continue to
bite into the trucking and transportation industries' profits. In
response, many of these firms, including UPS and FedEx, are
tacking on delivery surcharges--in some cases, of 6 percent or
more. In addition, trucking companies are adopting efforts to
improve efficiency and reduce fuel consumption by cutting idling
times and organizing driving routes better. Fuel prices are also
harming many District businesses indirectly. For example, car
dealers report that SUV sales are down moderately because of high
gas prices.
Real Estate and Construction
Sales of existing homes slowed somewhat in March in several areas
of the District, especially in West Tennessee and Memphis. Real
estate agents cite higher interest rates as a reason. On the other
hand, some areas, such as parts of Arkansas and northeast
Mississippi, continue to experience strong housing demand, with
several agents in the region reporting a shortage of available
houses, particularly mid-priced (about $200,000) ones. Sales of
new homes have continued to weaken somewhat District-wide.
Residential construction picked
up significantly in February, partly because of the unseasonable
weather. Year-to-date permits in February were above their
year-earlier levels. Commercial construction has maintained its
moderate growth trend, especially in southern parts of the
District, where agents note healthy demand.
Banking and Finance
Although District banks continue to struggle to raise deposits,
outstanding loans on the books continue to show a moderate
increase. Between January and March, total deposits at a sample of
large District banks remained flat, while total loans outstanding
increased by slightly more than 1 percent. Almost all of the loan
growth came from the commercial and industrial category, which
grew by 2.4 percent. Real estate and consumer loans were basically
unchanged. Nevertheless, all of these loan categories were up
substantially from a year earlier. For example, despite higher
interest rates, commercial and industrial loans were up by more
than 15 percent, while real estate loans grew by more than 6
percent. Over the same period, total deposits grew by less than 1
percent. Confidence in the economy is often cited as a reason for
the continued loan growth.
Agriculture and Natural
Resources
Although still relatively low, prices for corn, soybeans and
cotton seem to have turned around somewhat during recent months,
ending an almost three-year decline. Wheat prices also remain low
and have shown no sign of recovery. Hog prices, on the other hand,
rebounded significantly from year-ago levels due to a slight
decrease in production and growing demand.
With favorable spring weather,
many farmers are slightly ahead of schedule with field preparation
and planting. Soil-moisture levels, however, remain low in
Illinois, Missouri and southern Indiana; they are reportedly
adequate in Kentucky and the southern portion of the District. The
District winter wheat crop is in good-to-excellent condition in
many areas. In the northern part of the District, planting
intentions for corn and soybeans are estimated to be about the
same as last year. In the southern portion of the District,
farmers intend to increase acreage for corn and cotton, and
decrease it for soybeans and rice.
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Ninth District -
Minneapolis
Economic activity in the Ninth
District continues at a robust pace. Construction, manufacturing,
energy, and iron and palladium mining industries keep on
invigorating the economy. Consumer spending is still strong and
agriculture continues to climb out of its deep slump. Due to light
snowfall, winter tourism finished down, but the outlook for summer
tourism is bright. Labor markets are still tight as businesses
report wage pressures. Consumer inflation remains stable, although
some price increases were noted, primarily in petroleum-related
products.
Construction and Real Estate
Commercial construction activity is hardy. Contracts awarded for
construction projects increased 17 percent in Minnesota and the
Dakotas for the three-month period ending in February compared
with a year earlier. In addition, loan demand for commercial real
estate is strong in Montana, reports a bank director.
Residential construction also is
sturdy as building permits and home values continue to rise.
During the first quarter of 2000, 18 percent more district housing
permits were authorized than a year earlier. Despite higher
interest rates, building activity remains brisk in the Upper
Peninsula of Michigan, according to a homebuilder association
board member. In addition, recent valuations on property in the
Rochester, Minn., area are expected to show a 10 percent to 15
percent increase from a year ago.
Consumer Spending
Spending at retail stores continues at a vigorous pace. Recent
sales at two Minneapolis area malls were up 7 percent to 10
percent over a year ago. A major electronics retailer reports that
Minnesota and North Dakota year-to-date March same-store sales
were up 8 percent compared with a year ago, and South Dakota
year-to-date March same-store sales were up 12 percent. New car
and truck sales in North Dakota for March were 5 percent above a
year earlier. An auto dealer association representative in South
Dakota reports strong sales overall during first quarter compared
with last year, but softer sales at dealerships in rural areas.
Meanwhile, winter tourism
finished down due to abnormally light snowfall. The winter season
was off 10 percent to 15 percent compared with last year in the
Upper Peninsula of Michigan. Hotel occupancy in northern Wisconsin
was below last year's levels for February and March, according to
a chamber of commerce representative. On a positive note,
inquiries about summer activities were at or above year-earlier
levels at tourism offices.
Manufacturing
Manufacturing in the Ninth District remains robust. A March
purchasing manager survey by Creighton University indicates a
strong manufacturing sector in Minnesota, North Dakota and South
Dakota. For example, sales doubled compared with a year ago at a
Minnesota microelectronics equipment manufacturer, and sales
increased 16 percent over last year at an industrial machinery and
equipment company. In addition, a Wisconsin concrete producer
noted increased sales and a plastic products company reported a
plant expansion in western Wisconsin. However, a computer
component company shut down its photo etching operations in
Wisconsin due to soft demand for disk drives.
Mining and Energy
The iron ore and palladium industries are at full production,
while Montana gold mining continues to struggle. An iron ore
industry spokesperson reports full production and strong demand.
February year-to-date iron ore shipments were 78 percent above
year-ago levels, while January inventory levels were down 15
percent. A Montana mining industry spokesman reports palladium
production "continues at full speed ahead," while gold
mining is still plagued by low prices and environmental issues.
Meanwhile, Ninth District oil
exploration and production continue at a strong pace. In April, 13
rigs were operating in North Dakota compared with one a year ago
and estimated April oil production in North Dakota was up 1
percent from a year ago at 92,000 barrels per day. In addition,
Montana rig operation increased to six compared with four a year
ago, and Montana oil production is up 6 percent from a year ago at
47, 000 barrels per day.
Agriculture
A mild winter has benefited district cattle producers. Ranchers
report healthy livestock and generally good calving conditions
across nearly the entire district. The U.S. Department of
Agriculture reports that calving is almost complete, and most
calves and cows are in good to excellent condition.
Meanwhile, most district farmers
need rain. The U.S. Department of Agriculture reports that topsoil
moisture conditions are rated as short or very short for 59
percent of Montana, 42 percent of Minnesota, 26 percent of South
Dakota and 26 percent of North Dakota. However, the Montana
Agricultural Statistics Service reports that 51 percent of the
Montana winter wheat crop is in good to excellent condition.
Employment, Wages, and Prices
Finding workers is difficult. Due to a lack of available workers
locally, a major Minneapolis/St. Paul-based discount retailer is
expanding its credit operations center in another state after
initially planning to stay in Minnesota. A small seed producer in
North Dakota is operating 10 hours a day, but would stay open 24
hours if the labor became available. Potential relief was noted by
a manager at a company in St. Cloud, Minn., who is optimistic that
the labor pool may expand due to a repeal of restrictions on the
amount older workers can earn before reducing Social Security
benefits.
Even though labor markets remain
tight, some layoffs were reported. A computer disk drive
manufacturer will cut 950 jobs due to soft demand, a printing
plant closing in St. Paul will cost 550 jobs, and a major
Minneapolis-based food company will release 270 workers due to
restructuring.
Businesses continue to increase
wages to attract workers. District manufacturing wages are up 3
percent compared with a year earlier. An economic development
official in Sioux Falls, S.D., noted wage pressure for unskilled
positions, including signing bonuses at fast food restaurants.
Nurses at a Missoula, Mont., hospital will receive an 8 percent
raise next year.
Inflation is generally stable,
with some notable exceptions, especially increases in petroleum
and health care. Bank directors report additional fuel surcharges
for transportation and heating services. Trucking rates are up 9
percent from a year ago, according to a Minnesota Trucking
Association spokesperson. Health care costs in Minnesota increased
10 percent to 12 percent from year-earlier levels, reports a bank
director. In addition, the St. Cloud Area Business Outlook
Survey shows that 34 percent of area firms expect to increase
prices over the next six months, the highest level since the
survey began in December 1998.
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Tenth District - Kansas
City
The Tenth District economy held
steady in March and early April, although there was some increased
evidence of price pressures. Retail sales were largely unchanged,
manufacturing activity remained strong, and construction activity
continued at a solid pace. Activity in the energy sector was also
stable after improving during much of the past year. In the farm
economy, the winter wheat crop was generally in good condition.
Labor markets remained very tight, with wage pressures slightly
higher than in the recent past. Price increases for manufacturing
materials were more pervasive than in previous months. Retail
prices also continued to edge up, as did prices for certain
construction materials.
Retail Sales
Retail sales were flat in March and early April, and largely
unchanged from a year ago. Several managers attributed the lack of
growth to a late Easter season, and expectations for summer retail
activity remained favorable. E-commerce activity continued to
build sales for some retailers in the district. On the negative
side, some high-end stores reported that sales have been hurt by
recent stock market volatility. Purchases of home furnishings
remained strong, while men's clothing continued to move slowly.
Store inventories crept up due to the flat sales but most managers
remained satisfied with current stock levels. Motor vehicle sales
improved as expected, as the truck and SUV market segment
rebounded from a slowdown in the winter months. Dealers continued
to express optimism regarding future prospects, and virtually no
vehicle inventory problems were reported.
Manufacturing
District factory activity remained strong, due in part to the
continued improvement of export markets. Most plants reported high
levels of capacity utilization. Manufacturing materials remained
generally available, although some managers reported difficulties
obtaining steel products. Lead times were unchanged. There were
increased reports of dissatisfaction with inventory levels,
however, and many plants intend to trim stock in coming months.
Housing
Housing starts were flat in March but still relatively high by
historical standards. Builders were cautiously optimistic heading
into the summer, despite rising interest rates and the application
of growth controls in some areas. Material availability concerns
have eased in recent months, although some builders reported
persistent shortages of lumber and insulation. Home sales picked
up in March after slowing in previous months. Despite the slow
turnover in the housing market prior to March, inventories of
unsold homes remained quite low in many portions of the district.
Home prices throughout most of the district continued to rise
faster than in the nation as a whole. Mortgage demand picked up in
March and early April but remained lower than a year ago, with
little refinancing activity taking place.
Banking
Bankers report that loans increased somewhat more than deposits
over the past month, boosting loan-deposit ratios slightly. Demand
fell for home mortgage loans but increased for commercial and
industrial loans, commercial real estate loans, and construction
loans. On the deposit side, demand deposits, MMDAs, large CDs, and
small time deposits all edged up. Almost all respondent banks
increased their prime rate in the past month, and most raised
their consumer lending rates as well. Lending standards were
generally unchanged.
Energy
District energy activity was unchanged in March and early April,
as producers remained cautious due to changing oil prices. The
price of West Texas intermediate crude oil was almost 25 percent
below its March peak by mid-April, but 50 percent above year-ago
prices. Despite little change in recent months, the count of
active oil and gas drilling rigs in the region was still 80
percent higher than a year ago, and contacts in some
energy-dependent areas noted the turnaround was helping their
local economies. Natural gas prices have continued to rise into
the spring and are expected to rise further throughout the year,
due to small gas inventories.
Agriculture
The district's winter wheat crop was generally in good condition,
but timely rainfall will be needed during the growing season to
ensure development of the crop. Despite unusually dry weather in
much of the district, planting of spring crops has been proceeding
on schedule. District bankers expect continued low crop prices to
hurt farm incomes this year. As a result, many banks are keeping a
close watch on their farm loans, even though farm loan portfolios
are generally in good condition. Bankers indicate farm lending
standards have not been tightened.
Wages and Prices
Labor markets in most of the Tenth District remained very tight,
with reports of labor shortages similar to the recent past.
Entry-level workers continued to be very difficult to find, along
with welders, plumbers, computer specialists, casino employees,
and administrative workers. Retailers and builders, in particular,
continued to express disappointment with the pool of potential
workers. There was some increase in wage pressures in the
manufacturing sector, where some labor unions have made use of the
persistent shortage of qualified trades workers in recent contract
negotiations. The continued expansion of call centers in the
district also has reportedly placed additional pressure on wages
for entry-level positions in some places. Prices increased for
most manufacturing materials in March and early April, especially
for steel, plastic, and other petroleum-based products. Further
increases are anticipated. Retail prices also continued to edge
up, with similar increases expected in coming months. Builders
reported slight price increases for some construction materials,
such as insulation, gypsum wallboard, and PVC pipe. Small
increases in the prices for these materials are also expected in
the near future.
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Eleventh District -
Dallas
Eleventh District economic
activity continued to expand at a brisk pace in March and April.
Demand for business services remained quite strong, and energy
activity was up. Retailers reported generally good sales growth,
and auto sales were strong. Demand increased for most manufactured
products, but there were signs of slowing for some
construction-related inputs. Residential construction activity
remained quite strong, but nonresidential activity continued to
soften. Financial service contacts reported little change from the
last report. Agricultural conditions remain dry in many areas.
Prices
Price pressures were mixed. Most energy and construction prices
had fallen but some manufacturing and most service sector prices
were up. The price of crude oil has declined steadily since
peaking on March 7. Gasoline prices didn't peak until March 20 and
are now falling in response to lower oil prices. One factor
reported as keeping gasoline prices from falling along with oil
prices was low levels of output. Refiners were reluctant to buy
crude with prices falling rapidly. As oil prices stabilized near
$25 per barrel, the presumed OPEC target, refiners have been more
aggressive in buying crude and producing products to take
advantage of better profit margins. Some petrochemical prices have
fallen, such as for spot ethylene, in response to increased
capacity. Other petrochemical price increases continued to be
passed through to selling prices, despite falling oil prices, most
notably in polystyrene and polypropylene. Natural gas prices have
been unseasonably high due to an unusual number of planned and
unplanned coal-fired and nuclear-fired electric generator outages,
as well as unusually cold April weather in the Northeast. Storage
is building more slowly than normal due to strong demand, and
summer price spikes for gas are a possibility as weather heats up.
A new pipeline from Canada is expected to boost imports and
relieve price pressures before next winter, however. Contacts in
the construction industry continued to report that cost pressures
appear to have peaked, and noted that this has not filtered to
residential selling prices yet, but said competition will push
downward pressure through to selling prices soon if demand slows.
Computer manufacturers noted upward price pressure on parts that
have been in short supply, although this "has not been
dramatic." Computer selling prices stabilized, after falling
for several months. Paper producers reported increases in input
costs, with one saying prices were up 10 to 15 percent across the
board. Although prices recently leveled off, metals producers
noted some increases in selling prices as a result of higher input
prices, including those for energy and scrap metal. Import
competition is moderating price increases for some aluminum
products.
Imports are also pushing down
selling prices for concrete, and prices are expected to decline as
much as 15 percent further, despite relatively high fuel costs.
Selling prices for timber and lumber have softened and are
expected to decline further.
Generally, labor markets
remained tight, except those for some types of construction
workers. Temporary service firms said labor markets are tighter
than ever, and are concerned that an inability to find workers
will cut into business. Fees and wages are increasing at some of
these firms. Legal firms continued to report significant wage
increases. One firm raised associates' salaries three times in the
last 120 days, another said associate salaries increased 28
percent since last year, and contacts say they're permitting
casual-dressing to stay competitive. High-tech companies reported
that labor markets for skilled workers continued to be very tight,
and one respondent noted that this has led to a rash of
acquisitions of small startups. Metals manufacturers said the
labor market for low-end workers remained tight. Skilled workers
were also in short supply, with contacts noting difficulty finding
truck drivers, maintenance workers, engineers, and draftsmen. A
construction contact noted downward pressure on labor costs, and
said framing costs have dropped 30 cents per square foot as a
result.
Manufacturing
Manufacturing activity was up for most products, although there
was some slowing for cement, paper products, lumber and other
"early construction" wood products. Demand increased for
primary metals, apparel products, and clay and glass products used
in construction. Fabricated metals producers said sales were
strong to construction firms and booming sales to
telecommunications and semiconductor firms. Orders for high-tech
equipment accelerated over the last six weeks, with demand from
consumers stronger than from businesses. Contacts reported that
demand from Asia and Latin America picked up strongly.
Communication devices and laptops posted the strongest growth.
Computer manufacturers reported shortages of chip sets and DVD
drives, and one contact said they could have sold more laptops if
they could have made more. Capacity utilization at Texas Gulf
Coast refineries surged in early April.
Services
Demand for business services remained quite strong and nearly all
contacts said sales were better than at this time last year.
Temporary firms said almost all areas were performing well,
including manufacturing, energy and particularly high-tech. Legal
firms also reported strong demand, with increased bankruptcy and
less litigation work over the last six weeks. Transportation firms
also reported strong demand. Trucking firms said activity had been
particularly strong.
Retail Sales
Retailers reported generally good sales growth, although the late
Easter is providing some uncertainty about comparisons to last
year. Contacts expressed concern that stock market volatility
would dampen consumer confidence, but noted that there was no
apparent slowdown in sales during the week following the Dow's
drop. Auto sales have been very strong.
Financial Services
Lending activity was mostly stable, with a few contacts reporting
slightly slower C&I loan demand. A large bank said their loan
committee recommended tighter monitoring of margin trading
accounts. Generally, respondents said interest rates are not high
enough to stem loan growth. However, they said increasing interest
rates are negatively affecting margins because deposits reprice
faster than loans.
Construction and Real Estate
Residential construction and real estate activity has been strong
over the last six weeks, with one homebuilder reporting
double-digit sales growth compared to last year. Contacts were
somewhat less optimistic because they are concerned that recent
stock market weakness will dampen consumer confidence and sales.
Commercial construction and real estate activity has been slowing,
with contacts reporting fewer transactions and developments.
Office leasing has also slowed. One contact said that interest
costs are now affecting deals.
Energy
Domestic and international drilling activity increased, spurring
demand for oil field machinery and services. While the increase
was partly due to seasonal factors, contacts were more optimistic
that oil service and machinery markets are improving slowly
because the depth and complexity of drilling activity is slowly
improving. Domestic drilling was up 34 rigs during the first two
weeks of April, after remaining stagnant from November to late
March. New drilling was for both oil and gas, the first signs of
growing interest in oil-directed drilling since last fall. The
market remains subdued relative to the price of oil and natural
gas. Confidence that the recent OPEC agreement can hold the price
of oil near $25 per barrel might provide the incentive for a
significant increase in drilling activity. However, contacts
warned that an increase in domestic activity beyond 825-850 rigs
is unlikely due to personnel and equipment shortages. The U.S. rig
count currently stands at roughly 810 rigs.
Agriculture
Cool temperatures and rains slowed crop development and land
preparation. While rains delayed activity in some areas, soil and
cattle benefited from the moisture. Insufficient moisture
continues to hamper activity in other areas. In areas of deficient
rainfall, cattle movement continued, supplemental feeding remained
necessary and stock water was limited. In a few areas, some land
previously held out of production by the government CRP program
was being returned to crop production. The onion crop is reported
to be high quality and high yield.
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Twelfth District - San
Francisco
Reports from contacts indicated
continued strong performance by the Twelfth District economy in
recent weeks. Labor markets were tight in most areas, and
respondents reported increased upward pressure on wages and total
compensation. High oil prices led to increases in petroleum-based
goods prices, as well as higher costs in the transportation and
agriculture sectors. In addition, some contacts noted increases in
the price of natural gas at the wellhead and in the prices of
paper-based goods. Otherwise, materials costs and final product
prices remained fairly stable. District manufacturers, retail
trade contacts, and service providers reported strong demand and
no capacity constraints or material shortages. Activity in real
estate and construction markets remained vigorous, but growth
slowed a bit in some areas during the most recent survey period.
Financial institutions reported strong loan demand and good credit
quality.
Wages and Prices
Contacts throughout most of the District reported tight labor
markets at all skill levels and greater upward pressure on wages
and other forms of compensation. Reports of difficulties
recruiting and retaining workers with computer and other technical
skills were especially prevalent. Seattle and San Francisco
contacts mentioned heavy competition for such workers from
Internet-related firms. Contacts also mentioned shortages of other
types of employees, including middle managers and entry level
workers. A respondent in the retail trade sector reported
receiving only two applications for over 20 job openings at a new
store. Contacts in various states' manufacturing, agriculture,
real estate, transportation, retail trade, financial services, and
energy industries cited larger wage increases than in the recent
past, both for entry level and experienced workers. Respondents
also described an increase in the use of a diverse set of methods
for recruiting and retaining employees, such as increases in
overtime compensation rates, increases in stock options, employee
loans, and cash bonuses for referrals, hirings, retention, and
performance.
High oil prices boosted prices
for air, water, and ground transportation, gasoline, and some
petroleum-based materials. Respondents stated that some District
shippers are passing increased trucking costs through to their
customers in fuel surcharges. One contact noted an increase in the
price of natural gas at the wellhead, but this has not yet been
passed through to consumers. Contacts also cited increases in pulp
and paper prices in recent weeks.
Beyond these items, materials
costs and final goods prices remained fairly stable during recent
weeks. Contacts mentioned competitive pressures and increasing
productivity as forces keeping prices from rising. A contact from
the high-tech sector reported decreases in the prices of
microprocessors and some memory chips.
Retail Trade and Services
District respondents reported strong demand for retail merchandise
and services and no supply constraints. Contacts in the consumer
electronics, gaming, and restaurant sectors noted rapid sales.
Demand for radio and television advertising from
"dot-com" businesses is strong. Visitor arrivals to
Hawaii picked up slightly during the survey period, as increased
domestic travel to the islands offset sluggish Japanese tourism.
In addition, an increase in the snow pack contributed to a strong
finish to Utah's ski season. One contact reported that use of the
Internet is affecting competition and pricing in the retail
sector.
Manufacturing
Manufacturing contacts in most parts of the District reported
robust demand. Respondents in the pharmaceutical, biotechnology,
wood products, and semiconductor industries reported strong sales.
An increase in foreign demand boosted high-tech sales volumes.
Sales of machine tools rose relative to the same period a year
earlier, although exports declined. In the state of Washington,
however, commercial and defense-related aerospace orders continued
to decline, as did employment in the sector. No capacity
constraints or material shortages in District manufacturing were
reported.
Agriculture and
Resource-Related Industries
Increases in fuel costs pushed up costs in the District's
agriculture and energy sectors. Respondents from the agriculture
sector reported that increases in fuel costs squeezed margins, as
such increases could not be passed on to wholesalers or
distributors. Similarly, large price increases for natural gas at
the well head have not been passed through to consumers.
Real Estate and Construction
Real estate sales and construction activity remained at high
levels in most District states, although the pace of growth slowed
in some areas. Condo and single-family home prices continued to
increase in California, except for some parts of the Central
Valley. Hawaii contacts reported increases in home resales, strong
demand for construction on Hawaii, Maui, and Kauai, and increases
in prices in areas where inventory was low. Oregon respondents
wrote that construction of high-end homes slowed. Contacts from
Arizona and Utah reported that homes were staying on the market
longer, while, in Washington, residential sales activity and price
appreciation slowed. In Idaho, residential construction was flat
in January and February compared to a year earlier.
The commercial real estate
market also is very strong in most areas of California. Contacts
in the state noted that rental space and construction labor were
in short supply, and rents and construction costs increased.
Office rental rates in downtown Seattle increased, but
construction of large, high-tech projects in Oregon slowed in
recent weeks.
Financial Institutions
District financial industry contacts from California, Hawaii,
Idaho, Utah, and Washington reported strong loan demand, increased
deposit growth, and no significant deterioration of loan quality.
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