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Beige Book: National Summary

May 4, 1994

Solid economic growth is reported in most parts of the country. In California, conditions remain weak, although some positive signs are starting to emerge. Reports from all Districts indicate that retail sales were strong in March, due in part to improved weather in many parts of the country. Retail pricing remains competitive, as few price increases and some price cuts are noted. Apparel sales improved, and auto sales are very strong. Service sector activity is reported to be good, with strength in business services and tourism. Manufacturing activity is expanding overall, although aerospace activity continues weak. Production of autos, vehicle parts, steel, and building materials is near capacity. Price increases are reported for some raw materials, but competitive pressures appear to be restraining prices for most manufactured products. Agricultural conditions are good in most parts of the country. Oil drilling activity is down, but drilling for natural gas remains strong. Home sales activity is reported brisk in most parts of the country, and improving in the Northeast and California. Several Districts note that recent interest rate hikes have contributed to a temporary surge in home sales. Contacts indicate that lending activity is picking up, with greater strength in consumer lending than in business lending.

Retail Trade
Several Districts report double-digit year-over-year increases in retail sales, as long-awaited spring weather in much of the country, combined with an early Easter, boosted March results. Philadelphia reports that healthy sales continued into early April. Improved apparel sales are noted in the New York, Cleveland, Atlanta, Chicago, and Kansas City Districts. Pricing remains very competitive in most areas, with few price increases and some price cuts for retail products. Dallas reports slow sales growth, with the strongest gains reported by retailers who have reduced their prices during the past year. No inventory surpluses or shortages are noted.

Reports suggest that auto sales were very strong through early April. Inventories of some models are quite tight. Most Districts indicate that higher interest rates did not reduce auto sales through mid-April, although one Chicago District auto dealer saw a sharp decline in activity as interest rates rose and customers worried about their losses in the financial markets.

Services
The service sector is generally healthy. Dallas reports growing demand in a wide range of business services, and San Francisco notes growing demand for telephone services in California and Washington. Contacts indicate that employers' health costs are rising more slowly, and health care providers are cutting their costs. Boston reports that hospitals are sharply reducing orders for large equipment.

Hotel activity is strong in many tourist destinations throughout the West and Southeast, including Myrtle Beach, New Orleans, Las Vegas, and Salt Lake City, while activity is improving in many California markets and in Hawaii. In Florida, observers hope that very weak visitor activity from Europe will be offset by more tourism from the improving economies of Latin America and the Caribbean. In the northern Midwest, cold weather restrained winter resort activity, but industry officials are optimistic about the summer season, especially in Montana.

Manufacturing
Manufacturing activity is expanding in most Districts, although the pace of activity is uneven across industries and regions. Many manufacturers in the Cleveland District report that demand from foreign buyers has improved. In the Richmond District, shipments, new orders, and backlogs grew, but employment changed little. In the Atlanta District, demand for apparel fabric appears to have improved. Electronic equipment manufacturers in Chicago and San Francisco Districts report healthy sales growth, but at rates somewhat slower than last year. The Chicago and Cleveland Districts note that vehicle manufacturing activity is at or near capacity. Several Districts report strong demand for building materials. Aerospace and defense-related manufacturing continues weak. San Francisco reports strong investment in computer and communications equipment, as companies replace outdated equipment in order to increase productivity and improve their competitive positions.

Manufacturers note that competitive pressures are restraining prices for most products. However, significant price increases are reported for certain raw materials, including building materials. Chicago indicates that capacity constraints have led to price increases for special-order steel products, since extra production time must be set aside to fill these orders. Several manufacturers in the Boston, Richmond, Chicago, and St. Louis Districts have successfully resisted suppliers' price increases, but some have been forced to absorb the increased cost of materials.

Agriculture and Resource-Related Industries
Favorable spring weather through the third week of April created good conditions for field preparation and planting in much of the country. In the Richmond and Minneapolis Districts, field preparation and planting were on schedule or ahead of schedule. In the Kansas City District, however, farmers were waiting for warmer and drier weather before planting corn and soybeans. Kansas City District cattle feedlots are operating near capacity, and cattle prices are up. The Dallas and San Francisco Districts report good agricultural activity, but dry weather and water supply restrictions are creating concerns. St. Louis notes that fertilizer prices have increased substantially during the past year.

Low oil prices have led to reduced oil production and oil drilling activity in the Kansas City District. Natural gas prices declined slightly, but Dallas reports that drilling activity is very strong in the Gulf of Mexico, where more than 70 percent of drilling is for natural gas.

<>>Real Estate and Construction
Home sales activity is reported brisk in most parts of the country, and improving in the Northeast and California, where activity had been weak. New homes are selling well in the New York and Atlanta Districts. A contact in the Chicago District reports that home- buying traffic fell off during April after a strong first quarter. Real estate agents in the St. Louis District report a shortage of houses on the market, especially in the mid-price range, and note that many sellers are receiving two or more bids at the asking price or higher. Minneapolis reports tight housing markets in its District, with strong growth in new housing permits. In the Kansas City District, building and sales activity both are strong, and inventories of unsold homes are low. Several Districts report higher building materials costs. Through mid-April, higher interest rates appear to have generated a surge in activity, due in part to buyers' concerns that rates could rise further. Several respondents in various regions of the country expressed concern that higher interest rates could restrain activity later in the year.

Major commercial construction projects are under way for the first time in several years in Manhattan. Office leasing activity in New York is reported to be "fairly brisk." Vacancy rates and leasing activity have improved in the Atlanta District as well. Strong commercial building activity also is noted in North Dakota, Wisconsin, South Dakota, and Montana.

Financial Institutions
Several Districts report improved lending activity, with consumer lending generally characterized as stronger than business lending. In the Philadelphia District, consumer installment and credit card lending is reported up, while business lending is flat or increasing marginally. Mortgage lending for home purchases is up in many Districts, but refinancing activity has fallen sharply throughout the country.