May 5, 1993
Reports from the twelve Federal Reserve districts indicate generally modest improvement in economic conditions across much of the nation. Shopper traffic and retail sales were reported to have rebounded modestly in April, following general declines in March resulting in part from severe weather. Manufacturers in most districts report increases in shipments and orders, with near-capacity production at some automotive and steel facilities. Higher production schedules are being met through productivity gains and overtime, although some districts have reported new hires. Residential real estate activity in most districts is strong or on the rise, and pockets of improvement in commercial office markets are noted by some districts. The general increase in lending continues to be concentrated in consumer loans and mortgage refinancing, with some reports of pickup in small business borrowing. District reports show generally stable prices, except for increases in steel and energy.
Consumer Spending
Most districts report modest increases in retail sales during April,
after widespread declines in March. Many contacts are encouraged by
recent signs of improvement, but the net performance for March and
April clearly will be much lower than for the first two months of
the year. Respondents in the eastern third of the nation blame the
mid-March blizzard for the net softening in sales. Retailers in the
Boston district remark that without the storm, sales would have been
above the levels a year ago. Relative weakness in March merchandise
sales is also noted in parts of the country not affected by the
storm. Retailers in Chicago cite renewed consumer uncertainty and
contacts in San Francisco point to concern about job security as
reasons for lower-than-expected sales in parts of their regions.
However, retailers in most districts report a rise in shopper
traffic and sales in April, apparently led by big-ticket items, such
as furniture and home appliances.
A general pickup in the sale of autos and light trucks in the first half of April is also reported in most districts. Dealers in the Cleveland, Dallas, and Philadelphia districts note that domestically produced models are selling at a faster pace than foreign-produced ones. Also, most dealers remain optimistic that the improved trend will continue in the near term, and they are satisfied that inventories are at manageable levels.
Retailers generally report stable prices on most items, citing stiff competition, consumer sensitivity to price hikes, and slower sales growth. Merchants contacted by Dallas and Kansas City indicate that prices are stable or slightly lower compared to a year ago, and that they expect prices to remain stable over the near term. Richmond contacts, on the other hand, cite an upward trend in retail prices.
Several districts, including Richmond and San Francisco, note a decline in tourism compared to a year ago. Resorts and hotels surveyed by Richmond indicate that the number of visitors is down from last year and that tourists are spending less. Hotel and convention industry representatives contacted by San Francisco characterize the Southern California visitor industry as depressed. At the same time, Atlanta reports a strong spring tourism season, with air passenger traffic, convention attendance, and the number of spring-break visitors to Florida higher than a year ago.
Manufacturing
Most districts, except Dallas, Kansas City, and San Francisco,
report general increases in shipments and orders, which have pushed
some facilities to operate at near capacity. Cleveland notes tight
conditions in some segments of the steel industry, where capacity-
level production and full order books have sustained general price
increases. Higher production levels in the steel industry are
reportedly linked to increased activity in the motor vehicle and
consumer appliance industries. One motor vehicle producer in the
Chicago district indicates that production of light trucks has been
bumping up against capacity limits. Increased demand has also
created bottlenecks at a few domestic motor vehicle parts and
assembly plants surveyed by Cleveland. Boston and Chicago cite
strong increases in automotive parts production, and Cleveland
reports near-capacity production of heavy-duty trucks. Electronics
manufacturers surveyed in the Boston and Chicago districts indicate
strong demand, with some respondents citing the highest level of
orders in the past five years. Contacts in Boston attribute part of
the higher production levels to expanding Latin American and Far
Eastern markets, which have partially offset weak demand in European
markets. Factory officials in Atlanta and Minneapolis note some
growth, primarily in the consumer durables, food processing, and
industrial machinery industries.
With the exception of steel price increases noted by Cleveland and Kansas City, most districts report constant or only slightly higher input prices compared to a year ago. Manufacturers surveyed by Atlanta comment that competition continues to hold prices of intermediate materials and final goods stable. Dallas respondents indicate flat to slightly failing prices in chemicals, plastics, petrochemicals, and electrical and electronic machinery, and San Francisco contacts add that aluminum prices are also soft. However, purchasing managers surveyed by Chicago note a somewhat faster rate of price increases as demand improves in that region.
Atlanta and San Francisco report that cutbacks in the aerospace and defense industries continue to dampen manufacturing activity. San Francisco respondents indicate that Boeing continues to lay off workers, although they anticipate that increased orders from foreign carriers may partially offset the weak demand from domestic airlines. Dallas notes that low levels of nonresidential construction and oil and gas drilling have contributed to lower production among the firms they contacted. Firms contacted by Kansas City report operating below capacity, in part because of decreased foreign sales.
Employment
Job conditions are mixed in most regions. Boston, Cleveland,
Minneapolis, Philadelphia, and St. Louis report that some firms are
hiring modestly, particularly in automotive products and capital
goods industries. However, no district anticipates a flurry of new
hiring in the near term, even though several industries are
reportedly producing near capacity. Employers surveyed in the
Atlanta, Cleveland, Dallas, and Kansas City districts report that
they are avoiding new hires by extending hours, using temporary
workers, or increasing productivity. Atlanta adds that wage
pressures are generally absent among their contacts. Job losses
continue for defense-related and computer companies in the
Minneapolis district, for apparel makers and food processors in the
St. Louis district, and for a few insurance and pension firms in the
Boston district.
Real Estate/Construction
Most district reports indicate strong or improving residential real
estate markets. Contacts in Boston and New York note recent
improvement in low-priced and mid-priced home sales. A respondent in
Boston expresses encouragement that condominium sales volume is up
significantly, which he believes may mark an end to the slump in
this market. Prolonged wet weather has reportedly dampened
homebuilding in the Kansas City and St. Louis districts, but
builders in both areas expect starts to pick up as the weather
improves. San Francisco notes that homebuilding is strong only in
areas outside of Southern California. Homebuilders surveyed by most
districts indicate that the sharp increase in lumber prices in
recent months has added to the cost of new homes. However, lumber
industry representatives contacted by the San Francisco bank report
a 20 percent decline in lumber and plywood prices from the March
peak.
The commercial real estate market remains weak in most districts, except for isolated pockets of increased activity. Contacts in Minneapolis report that commercial contract awards are up significantly from a year ago. Realtors in New York note brisk leasing of commercial office space in midtown Manhattan but subdued activity in downtown Manhattan and in a few immediate suburbs. Richmond's survey finds strong commercial activity in the Carolinas and in Richmond, but weak conditions in Maryland and in the District of Columbia.
Financial Institutions
District reports of lending activity range from little change to
moderate growth. Surveys of bankers generally reveal that most of
the increase is concentrated in consumer loans and residential
mortgage refinancing. Several lenders in Cleveland report that the
volume of mortgage refinancing is virtually at capacity, and
respondents in Atlanta note that mortgage refinancing accounts for
nearly two-thirds of the brisk pace in current originations.
Philadelphia, on the other hand, indicates flat consumer and
mortgage lending, as households reportedly continue to consolidate
and reduce debt.
A few districts, including Atlanta, Kansas City, and St. Louis, note a pickup in commercial loans, particularly to small businesses. Some bankers surveyed by Cleveland cite a strong demand by businesses to refinance existing loans. Many respondents across the country report that deposit growth is steady, attributable in part to aggressive pricing and marketing programs. Bankers from several districts describe loan markets as very competitive and state that more aggressive pricing has decreased net interest margins A few bankers contacted by St Louis have expressed concern that narrow margins have contributed to slow deposit growth in their region.
Agriculture/Resources
An unseasonably cool and wet spring has delayed fieldwork and
planting for a wide variety of crops in the Chicago, Kansas City,
Minneapolis, Richmond, and St Louis districts. This damage is
reportedly not irreparable, provided the weather improves in the
coming months. Winter wheat crops are said to be in good shape in
the Kansas City and St. Louis districts. Richmond and St. Louis
report recent improvements in the condition of their peach and apple
crops. Livestock prices are high, benefiting producers in the
Chicago, Kansas City, and Minneapolis districts. San Francisco
indicates strong prices for several other agricultural products.
Minneapolis reports increased shipments of iron ore and stable conditions in copper mining despite low copper prices. Dallas and Kansas City report seasonally low domestic oil drilling. OPEC production cutbacks and blizzard-related consumption hikes are expected to keep oil and natural gas storage levels low and prices on the high side for several months.