Beige Book: National Summary
March 15, 1995
Reports from the twelve Federal Reserve districts suggest that the pace of the economic expansion has moderated over the past two months. Half the districts note that growth has slowed, while the remaining districts generally report that conditions are mixed. Retail sales and residential construction weakened across much of the country. In contrast, manufacturing continued to grow in all but one of the regions and labor markets remained strong. Although commodity prices continued to rise, several districts note that the rate of increase has decelerated. There is little evidence that strength in labor markets or increases in commodity prices have spilled over into wages or prices of finished goods.
Retail
Recent reports suggest that retail sales growth, measured on a year-
over-year basis, slowed in over two-thirds of the districts.
Retailers in Boston report sales were flat or declining for a broad
range of merchandise, including winter apparel, housewares, and
sports equipment. Minneapolis cites news reports of a "retail
slump," while retailers in both the Dallas and San Francisco regions
report that sales declined along the Mexican border because of the
weak peso. While two districts report noticeably stronger retail
sales growth, they note that much of the strength is attributable to
special factors--weather in New York and clearance promotions in
Kansas City. Retail inventories have increased beyond planned levels
in the Cleveland, Richmond, Chicago, and Dallas districts. Auto
sales have generally weakened; dealers in the San Francisco region
are using rebates and other incentives to bolster sales.
Manufacturing
Growth in the manufacturing sector has generally remained strong
since the beginning of the year. Manufacturing strengthened in
Philadelphia, Minneapolis, and Dallas, while remaining robust in
Cleveland, Chicago, and Kansas City. Sources in Minneapolis describe
the strongest manufacturing performance in recent years. Boston, New
York, Atlanta, and San Francisco report that conditions were mixed,
with weakness in some segments of manufacturing offsetting strength
in others. The sector continued to grow but at a slower pace in St.
Louis. Preliminary results of Richmond's survey of manufacturers
show that new orders, backlogs, and employment indexes were down
slightly in February from their January levels. Contacts in three of
the districts expect the pace of manufacturing growth to moderate in
coming months.
Capital goods industries have been particularly robust. Cleveland reports that orders of capital goods, led by strength in export markets, have continued to grow strongly. In St. Louis, exports of capital goods included construction equipment shipped to Japan in the wake of the Kobe earthquake. Computer equipment, pulp and paper products, and electronics are also repeatedly cited as sources of manufacturing strength. Examples of manufacturing weakness include the aerospace industry (Boston and San Francisco), automobiles and auto supplies (Boston and Chicago), and apparel (Atlanta and Dallas).
Construction and Real Estate
Construction of single-family homes continued to slow from 1994
levels across much of the country. Atlanta, St. Louis, Kansas City,
Dallas, and San Francisco report that homebuilding declined, while
Philadelphia and Minneapolis report that activity leveled off.
Looking forward, however, contacts in a third of the districts
expect demand to strengthen later this spring. In contrast to the
weakness in single-family homes, the construction of multifamily
housing increased in both the Atlanta and Kansas City regions.
Reports on commercial construction are more upbeat. Cleveland, Richmond, Atlanta, Chicago, Minneapolis, and Dallas note an increase in commercial construction, driven by such diverse factors as a scarcity of large blocks of contiguous office space (Atlanta), expansion of manufacturing capacity (Chicago), and increased demand for warehouse space (Minneapolis). Reports on commercial real estate markets are mixed, however. The market softened for office space in midtown Manhattan. Philadelphia notes that its office market remains weak, although demand for industrial space has firmed. Within the San Francisco region, commercial real estate markets are weak in California but strong elsewhere.
Banking and Finance
Loan demand was steady or higher in nearly all of the districts. The
strength in lending was primarily attributable to commercial and
industrial loans. In contrast, New York, Atlanta, St. Louis, and
Kansas City report that residential mortgage lending slowed as the
housing sector cooled; Cleveland notes that mortgage refinancing is
at a standstill. Consumer lending--especially automobile loans--
weakened in Philadelphia, Cleveland, Atlanta, and St. Louis while
remaining flat in Richmond and Dallas.
Agriculture
Favorable weather conditions coupled with increases in crop and
livestock prices brightened the outlook for farm incomes. Chicago
reports that market conditions in the agricultural sector held up
better than expected. Mild winter weather benefited livestock
production in the Richmond and Minneapolis districts. St. Louis,
Dallas, and San Francisco note that strong domestic demand coupled
with reduced foreign supply boosted cotton prices.
Prices and Wages
Although commodity prices have continued to rise, several districts
report that the rate of increase seems to have eased. Boston notes
that some suppliers of steel and chemicals are now offering customer
rebates to soften the impact of price increases. Contacts in
Cleveland report a moderation in the rate of increase of industrial
commodity prices. Fewer manufacturers in Minneapolis report delivery
delays, while manufacturers in Dallas expect price pressures to ease
in coming months. In contrast, Chicago sees little evidence that
manufacturers' input prices have ebbed and notes that recovery
abroad may put upward pressure on commodity prices by tightening
import supplies.
In general, the districts report that increases in commodity prices have not spilled over into prices of finished goods. Boston notes that finished goods prices have generally remained stable, with increases for some products offset by decreases for others. Chicago, Kansas City, and Dallas report that intense competition among retailers kept prices flat despite increased input costs.
Labor market conditions are generally strong. Cleveland, Chicago, and Minneapolis report that labor markets have remained tight. A survey by a large temporary help firm in Chicago showed further strengthening in employers' hiring plans after record high levels late last year. Similarly, Minneapolis notes shortages of skilled workers, particularly in manufacturing. New York, Atlanta, St. Louis, and Kansas City report spot shortages in labor. In contrast, manufacturers hiring for replacement purposes in the Boston region had little difficulty finding qualified workers. Despite the strength in labor markets, the districts report little evidence of upward pressure on wages.