August 9, 1995
Most districts continue to report economic expansion, although in some areas the rate of expansion has moderated recently. The Upper Midwest, Southeast and West continue to expand. Other areas are experiencing little or no growth. Expansion of retail sales also varies by geographic region, with the center of the country generally doing somewhat better than other areas. Manufacturing, particularly the auto and construction-related industries, continues to slow in many districts. However, orders are up in some districts, and inventories generally are considered to be at acceptable levels. Reports of tight labor markets come from many districts, but few report increased wage pressures. Three-quarters of the districts continue to report higher prices for raw materials, but the rate of increase is decelerating. Retail prices are generally unchanged or up modestly. In most areas of the country, residential and commercial real estate markets are picking up; loan demand is steady or strengthening. Weather concerns dominate reports from most agricultural-producing districts, while livestock producers face reduced profits because of lower selling prices and higher feed grain prices.
Consumer Spending
Compared with one year ago, retail sales are up slightly in the
Atlanta, Chicago, Kansas City, New York and St. Louis districts,
while the remaining districts report sluggish or declining sales.
The Atlanta, Chicago, Kansas City and New York districts report
strong growth in apparel sales, while the Boston and Dallas
districts report either declining or steady apparel sales. Boson
also notes that sales of durables are below retailers' expectations.
The Philadelphia district reports that discount stores are doing
well and that the recent heat wave increased the demand for air
conditioners, fans, outdoor furniture and lawn equipment In general,
though, retailers in this district are experiencing their usual
seasonal slowdown. The Kansas City and New York districts note that
sales of home furnishings and home improvement goods are weak, while
retailers in the Atlanta district have seen a recent uptick for
these products. Most districts report that retailers' inventories
are at acceptable levels. Contacts in the Atlanta district expect a
good back-to-school season, while St. Louis contacts are somewhat
more pessimistic.
Reports on auto sales are mixed, ranging from sluggish in the Atlanta, Minneapolis and San Francisco districts, to above last year's levels in the Cleveland, Dallas and Kansas City districts. In the Philadelphia district, increases in auto sales are leveling off from their higher rates earlier in the year, and dealers in the St. Louis district report flat to moderately strong growth. In the Chicago district, auto leasing is very strong.
Manufacturing
Manufacturing production continues to slow in most districts. The
Boston, Cleveland. Dallas, Minneapolis, Philadelphia, Richmond and
St Louis districts report some slowing, while New York and San
Francisco have mixed reports from their contacts. Some districts
note that the auto and construction-related industries have slowed
recently, with accompanying effects on firms that supply these
industries.
The Atlanta, Chicago and Kansas City districts report some gains in overall production, with Atlanta, Chicago and San Francisco noting increases in orders. The demand for machinery has jumped significantly in the Boson district. Computer and electronic firms in the Atlanta district indicate that recent increases in orders are adding to their backlogs. Heavy truck manufacturers in the Cleveland district report that a backlog of orders is sustaining their business. The Chicago district notes a decline in steel demand, while St. Louis is experiencing an expansion in the steel industry.
Exporters in the Boston district report that even though sales to European markets have been sluggish, demand from developing countries has grown substantially. Inventories at firms in the Cleveland and Kansas City districts are at desired levels, but firms in the Atlanta district report that levels remain below those posted earlier in the year. Small high-tech firms in the Minneapolis district note expanding activity.
Labor Markets
Labor market conditions vary across and within districts. Contacts
in the Philadelphia district note that they have trimmed payrolls
and reduced hours. Similarly, contacts in the St. Louis district
note that the need for temporary workers or overtime has diminished
greatly. The New York district says that announcements of employment
gains have been mostly offset by recent layoffs. Temporary
employment agencies in the Boston, Dallas and Richmond districts,
however, report strong demand. Firms in more than half of the
districts continue to report difficulty hiring and retaining both
skilled and entry-level workers.
Wages and Prices
Nearly all districts note that price pressures remain on materials
and supplies, with reports of increasing prices generally
outnumbering reports of flat or declining prices. Overall, though,
the rate of increases appears to be moderating. Despite reports of
minimal wage pressures, there are some reported exceptions. In the
Dallas and Richmond districts, for example, wages for temporary
workers have been accelerating while in the Chicago and Minneapolis
districts, upward pressure on wages for entry-level employees
continues. Retail prices in the Kansas City and New York districts
are generally unchanged to up slightly, although individual
districts report declining apparel and computer prices. Some
retailers in the San Francisco district are now tempering their
price increases for fear of hurting sales.
Input price increases at the manufacturing level are more widespread and appear to be more prevalent for raw materials like paper and wood products, chemicals and certain metals. Nine districts report higher input prices; of those nine, two-Boston and Cleveland-expect to see higher prices of cotton goods and furniture, respectively, later this year. In the Dallas district, on the other hand, recently announced increases in chemical prices have been rescinded, and in the Chicago district, prices for steel and resin have actually declined.
Construction and Real Estate
Residential and commercial real estate markets have improved
somewhat in most districts. Contacts in the Atlanta, Chicago,
Dallas, Kansas City, Philadelphia and San Francisco districts report
recent increases in single-family home construction or sales, while
New York and St. Louis report slack activity. Despite recent
increases, year-to-date residential construction is still below the
records set in many districts in 1994. Recent reductions in mortgage
interest rates are credited for the pick-up in new construction and
sales. Real estate agents in the Philadelphia district report a
large inventory of homes for sale, but contacts in the Atlanta
district complain of a low inventory.
Activity in commercial real estate markets, especially industrial markets, continues to increase or hold steady across all reporting districts. Commercial vacancy rates have declined in the Minneapolis and Richmond districts, while holding steady in the Dallas and Philadelphia districts. The multifamily sector is strengthening in the Atlanta, Boston and Dallas districts. New residential construction is reported in the Atlanta, Chicago, Dallas and Minneapolis districts and in selected portions of the Richmond and San Francisco districts.
Banking and Finance
Loan demand appears to be steady or rising in a majority of
districts. Both the Atlanta and St. Louis districts note that
competition among lenders on price ad credit terms is fierce.
Atlanta, Cleveland, Kansas City, Philadelphia, Richmond, St. Louis
ad San Francisco report strong commercial and industrial loan
demand. Consumer loan growth is reported to be up in the Cleveland,
Dallas, Kansas City ad St. Louis districts. The Atlanta, Cleveland,
Dallas, New York, Philadelphia and Richmond districts report
increased residential mortgage lending because of home sales,
refinancings or both. Commercial real estate lending is reported to
be steady in the Dallas and Kansas City districts and weaker in the
Atlanta and New York districts. Loan delinquencies remain low in the
Cleveland, New York ad St. Lows districts.
Agriculture and Natural Resources
Crops conditions are generally favorable across the nation. Most
districts, however, report some form of adverse weather that has led
to heightened concerns about the size and quality of many crops,
which stem in part from this year's unusually late spring plantings.
For example, Kansas City reports that weather will need to be ideal
for the remainder of the season to produce normal yields for corn ad
soybeans. Elsewhere, hot, dry weather has affected crops in the
Dallas ad St. Louis districts, while Chicago, Minneapolis and
Richmond report some heat-related losses for poultry ad cattle
producers. Increasing feed grain prices and lower livestock prices
have diminished profit levels for livestock producers in the Kansas
City and Minneapolis districts; some producers in the Kansas City
district plan to reduce the size of their breeding herds in
response. With the wheat and small grain harvest complete in many
areas, yields are reportedly smaller and of lower quality in the
Kansas City district and parts of the St. Louis district. On the
other hand, record or near-record yields are reported in the
Richmond district ad in other parts of the St. Louis district.
Energy production has changed little despite lower oil prices. A marked decline in crude oil price has not prevented an increase in oil drilling activity in the Kansas City district. Despite lower natural gas prices in the Dallas district, drilling activity for natural gas is reportedly higher. Minneapolis reports robust growth in its natural resources industries. In particular, copper and wood products producers are operating at capacity, while activity in the San Francisco district's mining industry is increasing.