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Beige Book: National Summary

September 14, 1994

Economic activity continued to expand through the summer, according to reports from businesses in most Federal Reserve Districts. Regions that have been lagging are generally said to be doing better while most of the stronger areas saw growth plateau. The expansion in consumer spending is seen as healthy, albeit decelerating, and retailers' expectations for holiday sales are generally favorable. Summer tourism activity has generally been strong, outpacing last year's levels. Most manufacturers around the country continued to report at least moderate strength. Single-family home sales were seen as slowing modestly in most Districts, with home construction easing in some areas. At the same time, commercial real estate conditions were generally described as improved. Overall bank loan demand appears to be modestly increasing, but higher interest rates are reported to be slowing real estate lending in most areas. There are more reports of tightening labor markets than before, though wage pressures are still described as modest. Industrial materials prices edged up further, but businesses say that competitive pressures continue to restrain price increases on finished goods. Farm contacts report that crop conditions in most agricultural areas are favorable and point toward an excellent fall harvest.

Consumer Spending
Retail sales reports are mixed but generally positive. The majority of retailers report that sales continue to grow, while some characterize conditions as slow. St. Louis retailers saw year-over- year sales growth of 4 to 5 percent, but these figures fell short of their expectations. Stores in both the Atlanta and Philadelphia Districts reported that back-to-school sales were mixed. Contacts in the majority of Districts suggested that retail prices were remaining stable because of intense competition. Expectations for the holiday season are generally good. Retailers in the Atlanta, Chicago, Kansas City, and St. Louis Districts expect modest increases over last year's sales figures, while both Boston and Philadelphia contacts were hesitant to predict results for the remainder of the year. Retailers in the Atlanta, Chicago, and Kansas City Districts say that they are expanding inventories for the upcoming holiday season, while those in New York believe that inventories are about right.

Automobile dealers in most Districts report that demand is strong, but those in Chicago, Kansas City, Philadelphia, and St. Louis say that a limited supply of autos on the lot is restricting sales. Dallas dealers report that although sales have slowed they are still above year-ago levels. The Kansas City, Philadelphia, and St. Louis Districts expect sales to remain healthy as long as inventories hold out.

Tourism
Tourist activity over the summer has been generally good. In the Minneapolis District, hotel/motel occupancies, campground, and attraction traffic were above last year's levels. Tourism was especially strong in Boston, boosted by large conventions and international visitors. Traffic on Mississippi's Gulf Coast was reportedly heavy because of casino gambling attractions, but Florida tourism officials remain concerned about a sustained slowdown in visitor arrivals. Most of the San Francisco District saw an influx of foreign tourists taking advantage of the level of the dollar.

Manufacturing and Services
Steady to improving factory activity characterized most Districts' reports and comments on the near-term industrial outlook remained upbeat. Most firms are operating at high levels of capacity in the Kansas City District, and manufacturing activity remains vigorous in Chicago amid reports that capacity restraints are limiting production in some cases. Auto-related activity has rebounded from the summer slowdown in the Cleveland District, and suppliers to that industry note solid production gains in August. Forecasts by plant managers are generally positive in Philadelphia, where producers of durable goods report improving conditions. Firms in the St. Louis District note moderate growth, and those in Minneapolis say that producers of industrial machinery, farm implements, and construction-related products are posting strong sales. The San Francisco and Boston Districts commented on strong orders for computers, while electronic and telecommunications equipment demand is growing in Dallas. Although factory activity is mixed in Atlanta, most industrial contacts there expect to see increasing orders over the next few months; activity is currently rising at paper and some textile mills. Boston, Dallas, and Atlanta report that suppliers to the auto and light truck industry increased production in August, and in some cases expanded operations.

A number of manufacturers of heavy equipment and building materials have announced capacity expansion projects in the Chicago District. In the Kansas City region, manufacturers purchasing construction materials, such as cement and lumber, are facing longer delivery times. Dallas reports that the demand for chemicals is outstripping available capacity. Although overall manufacturers' shipments and new orders have evidently slowed in the Richmond District, exports have increased.

Less positively, some industrial sectors have shown little improvement. One aerospace supplier in the San Francisco District reports that its backlogs have increased in the past year, but they remain well below levels seen two years ago. Atlanta says that regional military contractors see orders declining and are concerned about future prospects. Manufacturing increased at a sluggish pace in Richmond and factory orders decelerated slightly in the Dallas region. Boston and Atlanta manufacturers indicate that orders for some types of apparel and textiles remain weak.

On the whole, service firms saw increased demand in most Districts. Dallas reports that demand for business services accelerated there, with temporary staffing and trucking firms noting the strongest gains.

Real Estate and Construction
Contacts in most Districts note a slowdown in single-family home sales. At the same time, the New York and Richmond Districts continue to report little change. Home prices are reported to be on the rise in the Atlanta, Kansas City, and San Francisco Districts, while contacts in the Dallas and Richmond Districts report prices remain unchanged. However, in Dallas, although home prices are steady, builders were said to be offering more discounts and incentives, such as free pools. Home builders in the Chicago, Kansas City, and San Francisco regions said that residential construction slowed, while those in the Atlanta, Dallas, Minneapolis, New York, and St. Louis Districts said the pace of such construction had increased.

Nationally, commercial real estate agents report improving conditions. However, realtors in the downtown areas of Dallas and Boston note that markets in those cities remain particularly weak while the surrounding suburbs are improving. Construction of retail stores is dominating the markets in the Atlanta, Dallas, and Richmond Districts. Multifamily occupancy rates and rental rates have been on the rise throughout the Atlanta and Dallas Districts.

Banking and Finance
Banks around the country reported that overall loan demand was steady or up modestly. Business lending was the strongest, with only banks in the St. Louis District reporting softer loan demand. Several contacts noted, however, that competition for commercial loan customers was intense. Consumer lending was said to be stronger in the Cleveland, Kansas City, Philadelphia, San Francisco, and St. Louis Districts, while bankers noted decreases in the Atlanta, New York, and Richmond Districts. Real estate and mortgage lending activity is down in most areas.

Wages and Prices
Labor markets seem to be steady or tightening in all areas. San Francisco reports that, outside of California, labor demand appears to be accelerating a bit in the District. Worker shortages are said to be growing increasingly frequent in the Chicago District and some contacts in the St. Louis and Atlanta Districts were also having trouble finding qualified workers. Temporary placement firms reported rising wages in the Chicago District and shortages of skilled construction and clerical workers in several Districts are putting upward pressure on area wages. Price increases have been reported for inputs of raw and intermediate materials. Prices of industrial commodities and building materials continue to trend upward in the Chicago and New York Districts. Atlanta contacts note that price increases for raw materials are becoming more wide spread, especially for paper, metals, and building products. Respondents in Philadelphia and San Francisco also report an upward movement in industrial prices. Boston and Dallas firms say that prices are increasing for fiber and paper, respectively. Minneapolis respondents see little pressure on prices except for petroleum products and newsprint. The competitive environment is holding finished goods prices down, according to contacts in Atlanta and Chicago.

Agriculture and Resource-Related Industries
Farm sources say crops for the upcoming fall harvest are generally in good-to-excellent condition. Yields are expected in the good-to- record range for most plantings. Reports from Chicago indicate that a bumper fall harvest appears to be in store for District farmers. In the Kansas City region, corn and soybean yields are expected to approach record levels. Farmers in the Dallas District expect production of corn, sorghum, rice, peanuts, and soybeans to be higher than last year. However, sentiment across the country is that farm incomes will not rise with the favorable harvest because of lower commodity prices. The forest products industry in the Minneapolis District is reportedly being buoyed by continued strength in nationwide construction. Dallas reports that the decline in oil prices was expected, but contacts were surprised at the fall in natural gas prices. Energy-related activity there, as well as the Kansas City District, was seasonally slow and below last year's levels.