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Beige Book
National Summary
April 24, 2002
Almost all Federal
Reserve Districts reported signs of improvement or actual increases
in economic activity since the last survey. The sole exception was
Boston, which described economic activity as mixed. While the overall
tone was positive, a few districts expressed qualifications about
the pace of the recovery or the strength of their regional economies.
Cleveland said its economy continued to improve but cited concerns
that the rate of improvement had slowed considerably from earlier
in the year. Also, Kansas City and Dallas noted that their economies
were still weak despite recent signs of improvement.
Retail sales increased or held steady in most
districts, and all districts reported stable or improved manufacturing
conditions. Manufacturers' capital spending plans, however, remained
limited. Residential real estate activity was strong in most districts,
as both home sales and construction increased. Tourism activity
also improved in most areas, while other services activity held
steady. Demand for bank loans was little changed in most districts,
although increases were reported in some regions. Commercial real
estate markets remained generally weak, especially in the San Francisco,
Dallas, and Atlanta districts, but showed signs of steadying in
the New York, Richmond, Chicago, and Kansas City districts. Energy
activity continued to ease, and agricultural crops in several districts
were damaged by adverse spring weather.
Despite the increases in economic activity reported
in many districts, labor markets remained slack and wage and price
pressures generally stayed in check. Demand for labor showed signs
of firming in several districts but was still reported as weak in
others. Except for skilled health care workers, there were very
few reports of labor shortages. Also, those districts that mentioned
wage pressures described them as minimal. Retail prices were generally
flat. Steel producers sharply boosted prices, but most other manufacturers
held prices steady despite reports in some districts of higher costs
for fuel, steel, and petroleum-based inputs.
Consumer Spending
Most districts reported that retail sales held steady or rose moderately
in March and early April. Philadelphia and Richmond reported increased
sales from previous months, and Cleveland, Atlanta, Minneapolis, and
Kansas City reported sales above year-ago levels. Sales appeared to
be weakest in the Dallas district, although retailers there reported
some signs of improvement as well. In the New York, Chicago, and St.
Louis districts, sales at discount retailers were reported to be better
than at general merchandise stores. Home furnishing items continued
to sell particularly well in most districts. Apparel sales were reported
as weak in some districts, but as rebounding somewhat in the New York,
Philadelphia, and Cleveland districts. Store managers across the country
appeared to be largely satisfied with inventory levels, and were generally
positive about the outlook. Retailers in the Kansas City district,
however, said they were ready to begin discounting if sales did not
meet expectations.
Automobile sales were characterized as mixed or
flat in most districts reporting on such activity. Dealers were
cautiously optimistic about future sales in the Philadelphia and
Kansas City districts. On the other hand, Cleveland district auto
dealers did not expect to meet last year's sales levels, and dealers
in the Dallas district were concerned that rising interest rates
would dampen sales. Dealers in the St. Louis district were also
keeping inventories a little lower than usual in case sales did
not pick up.
Manufacturing
Manufacturing activity in March and early April was reported to be
either stabilizing or showing signs of improvement in all districts.
Plants in the Philadelphia and Richmond districts reported continued
growth in orders and shipments, and many plants in the St. Louis district
were hiring new and previously laid-off workers. Boston and Kansas
City also reported signs of a looming turnaround, but noted that activity
was still weak compared with a year ago. Industries reporting the
strongest activity included producers of auto parts, steel, residential
building materials, and furniture. Activity also remained solid at
automobile plants in the Cleveland and Chicago districts and among
semiconductor producers in the Boston, Dallas, and San Francisco districts.
Textile and apparel manufacturers in the Richmond, St. Louis, and
Dallas districts experienced increases in demand as well, but the
rebound follows numerous plant closures. Plants in most districts
reported a stabilization of inventories following a lengthy period
of decline, and some firms in the Chicago and San Francisco districts
were cautiously increasing stock levels.
Manufacturers were generally optimistic about
the outlook for factory activity later in the year. Purchasing managers
in the New York district, in fact, reported their highest expectations
for increases since mid-2000. In contrast, some producers of capital
goods in the Boston district expected weakness to continue until
2003. Despite the generally positive outlook, capital spending plans
remained rather limited across the country. Kansas City reported
a similar number of firms expected to increase as to decrease capital
expenditures over the next six months. Philadelphia reported that
manufacturers have raised capital spending plans, on balance, but
that the planned increases have been spotty and concentrated mainly
in the chemicals and plastics industries.
Real Estate and Construction
Residential real estate activity remained robust. Housing markets
were reported to be strong in most districts, with both home sales
and new construction showing continued gains. The housing market in
the Boston district was described as very strong, with listings in
short supply throughout the region. In New York, further strengthening
in home sales has caused the number of unsold homes to dwindle and
has led to some acceleration in housing prices. Richmond also reported
especially strong housing activity, with one metro area described
as the best sellers' market ever and another metro area said to be
experiencing rapidly escalating home prices. There were, however,
a few exceptions to the overall strength in housing activity. Home
sales softened somewhat in the Chicago district, and residential construction
activity remained weak in the Dallas district. Moreover, demand in
several districts was weaker for high-end homes than for low- and
mid-priced homes, and demand for rental units in the New York district
was not as strong as that for houses.
Commercial real estate activity remained generally
weak but appeared to be stabilizing in a few districts. Markets
remained especially weak in the San Francisco, Dallas, and Atlanta
districts. In the San Francisco district, vacancy rates continued
to increase, lease rates continued to decline, and new construction
was at a minimum. In the Dallas district, office markets were still
being held back by overcapacity and weak demand, causing steep declines
in rental rates in many areas. Commercial markets in Atlanta also
continued to suffer from weak demand, limiting new construction.
Commercial builders in the Cleveland district expected to be busy
in the coming months but were somewhat less optimistic than in the
previous survey, with more projects still in the planning stage
than they had hoped. On the positive side, commercial markets in
a few districts showed some signs of stabilization or improvement.
Leasing activity strengthened in the Richmond district, and office
vacancy rates appeared to level off in the New York, Chicago, and
Kansas City districts following months of steady increases. There
were also scattered reports in the Chicago district of sublease
space being pulled off the market by tenants who had overestimated
the extent of the business slowdown.
Tourism and Services
Travel and tourism continued to improve, yet remained below year-ago
levels in most reporting areas. Richmond and Minnesota reported strong
ski seasons in their districts, and Atlanta reported that theme parks
in Florida were busy and cruise lines were operating near capacity.
New York and Richmond both reported that hotel business had improved.
Expectations for the summer travel season were high in most districts.
However, Atlanta reported that some contacts fear high fuel costs
may limit automobile travel this summer and Kansas City reported that
advance bookings at mountain resorts were still trailing year-ago
levels.
Activity in other service industries was generally
steady. Trucking service firms in the Cleveland district noted a
moderate increase in the volume of manufacturing shipments, while
Dallas indicated that demand for transportation services was still
low relative to past levels. In the Cleveland district, trucking
firms' operating margins remained very thin due to high fuel and
insurance costs. A media company in the Richmond district reported
that ad revenues rose for the first time in over a year, and insurance
firms in Boston reported continued high demand for life insurance.
Demand for legal services, particularly in the areas of litigation
and bankruptcy, increased somewhat in the Dallas district.
Financial Services
Demand for bank loans held steady or rose modestly in most districts.
Banks in the Cleveland, San Francisco and Atlanta districts reported
some increase in demand for consumer loans and home-purchase mortgages,
while banks in the New York district experienced increased demand
for nonresidential mortgages. Demand for business loans was up modestly
in the Philadelphia district but flat in other districts. In the Chicago
district, banks noted that recent improvements in business sentiment
were not translating into increased loan demand. Similarly, banks
in the Philadelphia district said their business customers were seeing
increased demand but were showing little inclination to take out loans
to finance the expansion of facilities. In contrast to home-purchase
mortgage lending, mortgage refinancing activity in most districts
was down from the high levels reached last year.
Changes in credit quality showed no clear pattern.
At banks in the New York district, delinquencies fell for consumer
loans and residential mortgages. At banks in the Atlanta district,
consumer delinquencies increased but remained manageable. Banks
in the Chicago district reported that business loan quality had
stabilized following previous deterioration but was still fragile.
Banks in the Philadelphia and Kansas City districts were still limiting
their commercial real estate lending, and banks in the New York
district continued to tighten standards for all types of loans except
residential mortgages. Otherwise, lending standards were unchanged
in those districts reporting on them.
Natural Resources and Agriculture
Activity in the energy sector continued to ease. Despite recent increases
in oil and natural gas prices, contacts in the Dallas and Kansas City
districts reported that exploration and production activity in the
oil and gas sector was contracting while Minneapolis reported flat
activity. Kansas City indicated that the higher prices have produced
some optimism about future activity. Some producers in the Dallas
district also expressed interest in increased future activity, but
others were merely taking advantage of increased prices to improve
their balance sheets. Outside of the oil and gas industry, Minneapolis
reported that activity in the iron ore sector was expanding with the
reopening of some shuttered extraction and processing facilities.
In the farm economy, spring weather conditions
have adversely affected some areas. Continued low levels of soil
moisture in most of the Minneapolis, Kansas City, and Dallas districts
have damaged crops, while portions of the Cleveland, Chicago, and
St. Louis districts reported excessively wet conditions. Recent
cold weather may have also damaged the apple, peach, and strawberry
crops in the Richmond district. The winter wheat crop was reported
to be doing well in areas with sufficient moisture, including the
Cleveland and St. Louis districts, but has been severely damaged
in the drought areas of the Minneapolis and Kansas City districts.
Spring planting is either under way or is expected to begin soon
in most districts, with St. Louis and Chicago reporting that more
acres are being devoted to corn and fewer to soybeans this year.
Labor Markets, Wages, and Prices
Labor markets remained generally slack. Modest increases in demand
for workers in some industries were reported in the New York, Cleveland,
Richmond, Atlanta, and St. Louis districts, but otherwise demand was
weak across the nation. San Francisco and Dallas reported that employers
still have the advantage in most hiring situations, and firms in the
Kansas City district enjoyed a rising number of job applicants and
declining turnover rates. The only workers reported as being in short
supply in more than one district were those in skilled health care
occupations.
Wage pressures, when mentioned, were characterized
as minimal. Half of the manufacturers contacted in the Boston district
expected to hold wages steady at least until the second half of
the year. San Francisco reported that wages were being held back
due to significant increases in health care and other insurance
premiums. New York, Cleveland, Atlanta, and Dallas also reported
substantial increases in insurance costs.
Price pressures for consumer goods were
generally subdued, and prices for most manufactured goods held steady
despite higher costs for steel, fuel, and insurance. Retail prices
were essentially flat in the New York, Kansas City, and San Francisco
districts and were flat to down slightly in the Boston district.
Retail price pressures in the Chicago district also remained subdued,
with price-conscious consumers discouraging retailers from going
ahead with planned increases. Steel producers in the Cleveland and
Chicago districts raised prices significantly. Despite reports of
increasing input costs in some districts, other manufacturers generally
held their selling prices constant. Concerns about rising input
costs were especially pronounced in the Dallas district, where rising
costs for fuel, petroleum-based products, and insurance were said
to be adversely affecting many industries.
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