December 8, 1993
Most Federal Reserve Districts suggest that economic activity continued to expand at a moderate pace through the end of November and reports were generally more optimistic than those of this summer. Consumer spending improved in a majority of Districts, with sales of autos and other durable goods said to again show relative strength. Retailers in several Districts reported that the holiday shopping season got off to a good start over the long Thanksgiving weekend with sales at or exceeding expectations. Manufacturing activity also was seen as improving in most Districts, but few businesses reported new hiring. Residential real estate markets were once again noted as a source of strength in most District economies, while commercial real estate markets have begun to show a few signs of improvement. Wage increases and prices for final goods generally were said to be stable, although several Districts reported that prices for lumber and other building materials have risen since October. Commentary on conditions in three Districts--Boston, New York, and San Francisco--was more mixed, with particular weakness indicated in reports from California.
Consumer Spending
While retailers in a few Districts saw unseasonably slow retail
sales in the early fall, most were reporting gains by late October.
Stores in the Atlanta, Cleveland, and New York Districts noted that
consumer spending momentum began to pick up in late October, and
that it has continued into the holiday shopping season. Holiday
sales through the Thanksgiving weekend were better than they had
anticipated in the Atlanta, Chicago, Kansas City, Minneapolis, and
St. Louis Districts, despite severe weather in some areas. Reports
from Richmond and San Francisco indicate that retailers in those
Districts also expect relatively strong fourth quarter sales. The
Boston, Cleveland and Philadelphia Districts said that retailers
were relying upon special promotions to bring shoppers into the
stores.
Dealers in most Districts noted moderate year-over-year increases in auto and truck sales in October and November. Those in the Dallas and St. Louis Districts reported that trucks and minivans were selling the fastest, while leasing activity picked up in Cleveland. At the same time, low inventories of new model year vehicles were said to be constraining sales in parts of the Chicago, San Francisco, and St. Louis Districts, although in Chicago most shortages had been alleviated by November.
Manufacturing
Manufacturers in most Districts reported some strengthening in
current manufacturing activity, as well as improvements in
expectations of future business conditions. Firms in the Atlanta,
Dallas, and St. Louis Districts noted that production of lumber and
other building materials continues to benefit from increased
construction activity, while factory reports from the Cleveland and
Minneapolis Districts noted increased demand for construction-
related heavy equipment. Strong demand for consumer durables is said
to have provided a boost to manufacturers in the Boston, Chicago,
and Minneapolis Districts, while improved demand for autos and
trucks increased production at plants in the Atlanta, Boston,
Chicago, Cleveland, and St. Louis Districts. Capital goods producers
in the Cleveland District indicated that automobile-related orders
are a source of strength for the region into 1994. Looking forward,
manufacturers' expectations of future business activity in a
majority of Districts have improved recently, while many firms in
the New York and Philadelphia Districts have revised their capital
spending plans upward for the next six months.
Although business conditions are seen as improved in many industries, employment gains remain muted, with continued reports of defense and aerospace cutbacks. Manufacturers in the Atlanta District said that employment has been flat, while those in the Cleveland District noted that small firms also were not adding new employees. Reports from manufacturers in California indicate continued sluggishness. Businesses in the Atlanta, San Francisco, and St. Louis Districts cited new layoffs prompted by cutbacks in defense and NASA programs, while manufacturers of aircraft parts and defense-related equipment in the Boston District have continued to experience sales declines. Employers in the apparel industry in the Atlanta and Boston Districts also reported decreases in employment. Weak demand from foreign customers was said to be a source of concern to producers in the Boston and Cleveland Districts.
Real Estate and Construction
Contacts in most Districts reported continued strength in housing
markets, although those in the New York and San Francisco Districts
were not as positive. Atlanta, Kansas City, and St. Louis District
contacts said that year-to-date home sales remain well ahead of last
year. Builders in the Minneapolis District reported that residential
construction remains one of the District's strongest sectors.
Builders and realtors in the Atlanta, Dallas, and Kansas City
Districts said that inventories of homes for sale were tight, while
those in the Richmond District noted that strong demand and rising
lumber prices have pushed new home contract prices higher. Shortages
of available subcontractors and developed lots were said to be
starting to constrain home construction in some areas of the Atlanta
District. Builders in some part of the Dallas District are concerned
about a shortage of qualified construction laborers and sales
people, while those in St. Louis said they are struggling to keep up
with the backlog of orders caused by rainy summer weather. In
contrast, the reports from Philadelphia note that home inventories
remain elevated, while those from New York saw few signs of
increased interest from home-buyers.
Reports from commercial real estate markets were more mixed. Contacts in the Boston, New York, Philadelphia, and San Francisco Districts said that office and commercial vacancy rates remain at relatively high levels, although those in New York noted some improvement in downtown Manhattan. For Richmond, some improvement was seen in commercial leasing activity, as well as in office vacancy rates, but not enough to stimulate new building. In the Atlanta, Dallas, and Minneapolis Districts, however, construction of new retail space is said to reflect an improvement in commercial real estate markets.
Banking and Finance
Banks in most Districts said that overall loan demand improved
modestly, with all reporting stronger demand in at least one sector.
Those in the Atlanta, Chicago, Richmond, and St. Louis Districts
noted that commercial loan demand had risen modestly, while banks in
Cleveland, Dallas, and Philadelphia said it was still flat.
Commercial lending was reported to be weak in the New York District
and California. Atlanta, Kansas City, New York, and parts of the San
Francisco District saw generally stronger consumer loan demand,
while Cleveland, Philadelphia, and St. Louis noted specific
improvement in auto lending.
Wages and Prices
With the exception of some construction-related occupations,
businesses generally commented that wage increases were modest and
stable, while they said that prices of raw and intermediate
materials as well as final goods were rising slightly in some areas.
Higher agricultural prices stemming from weather-related crop damage
were noted in several Districts. Contacts in the Atlanta, Richmond,
and Kansas City Districts said that higher lumber prices were
driving up new home prices. Firms in the Chicago District noted that
signs of increased raw materials prices were becoming more common,
while those in Boston and Richmond said that some manufacturers have
been able to raise their prices. However, reports from contacts in
the New York, Kansas City, Minneapolis, and Atlanta Districts said
that prices for finished goods have remained stable.
Agriculture and Resource-Related Industries
Poor summer and fall weather were seen as having had a negative
impact upon crop yields in several Districts. The Kansas City and
Minneapolis Districts reported that corn and soy bean yields and
quality have been disappointing. Cotton yields were described as
substandard by contacts in the Dallas District and in much of the
St. Louis District. Dry weather combined with a poor hay crop has
some farmers in Richmond worried about the adequacy of their winter
feed stocks. Ranchers in the Kansas City District also report
concerns over possibly rising feed prices. Conditions in the seafood
industry in the San Francisco District were said to be poor. On a
brighter note, record levels were seen for soy yields in Illinois
and Indiana, corn production in Texas, and the wheat harvest in the
northern plains.
Recent weather conditions are said to have been favorable for agriculture in much of the country. In the Richmond District, the warm, dry weather has allowed fall planting activity to progress ahead of schedule. The recently planted winter wheat crop in the Kansas City District was reported to be in good condition.
Reports on mining activity were mixed. Kansas City reported that drilling activity was seen as steady to improved in all Tenth District states except New Mexico. Dallas, however, reported that rig counts had been falling in response to weak oil prices and a recent dip in natural gas prices. Miners in the Minneapolis District reported that strong gold prices were encouraging activity in South Dakota and Montana, but that low aluminum prices and higher electricity costs might begin to curb aluminum mining in Montana.