Beige Book: National Summary
December 6, 1995
Reports from the twelve Federal Reserve Districts suggest that national economic activity continues to expand, but at the somewhat slower pace reported in the last beige book. Most district banks indicated little change from the last report; however, Cleveland and New York reported slower growth, and Chicago reported moderating growth in manufacturing. Many districts noted that retail sales appeared stronger in early November following widespread weakness in October. Districts reporting on initial holiday sales found mixed conditions. Dallas and New York said sales were lower than expected, while Atlanta, Chicago and Cleveland reported encouraging holiday results. Most reports of auto sales were weaker.
Manufacturing production continued to rise, with strong demand for high-tech products in the Boston, Dallas, Minneapolis and San Francisco districts. However, several district banks reported slowing in some manufacturing industries. Single-family construction activity was mixed, but commercial real estate and construction activity remained a bright spot in many districts. Loan demand increased in most Federal Reserve districts, with strong demand for commercial and industrial loans. Demand for most business services remained strong.
Rising crop prices boosted farm income in Chicago, Kansas City and Minneapolis, yet higher feed costs and low cattle prices continued to squeeze margins for ranchers in some districts. Energy activity was mostly unchanged, despite a cold snap in the Midwest and Northeast that caused prices for natural gas, heating and crude oil to rise.
Most Federal Reserve districts reported tight labor market conditions for both skilled and unskilled labor. Several districts, including Chicago, Dallas and Minneapolis, reported rising wage pressures for entry-level positions. There were a few reports of price increases in intermediate goads, but very few for final goods.
Consumer Spending and Retail Trade
Many districts reported weak retail sales in October, but most said
sales appeared stronger in early November. Initial holiday sales
were mixed. Of the districts that reported on day-after-Thanksgiving
sales, Dallas and New York said contacts were somewhat disappointed
that sales did not meet expectations, while Atlanta, Chicago and
Cleveland said sales had met or exceeded retailers expectations.
Sales of apparel and other soft goods continued to be weaker than
sales of hard goods. Contacts in Atlanta, Boston, Chicago,
Minneapolis and Philadelphia said sales were strongest for
computers, electronic equipment and related goods. Discounting and
promotions were common across districts.
Vehicle sales weakened over the past six weeks according to several district banks. The Kansas City and St. Louis districts said a shortage of popular models constrained sales. Auto dealers in Philadelphia said sales of new model cars have not met expectations, and dealers in Chicago noted sports/utility vehicle sales were outperforming auto sales. Dallas was the only district reporting improved sales.
Manufacturing
Most district banks said production rose during the past six weeks.
Most notable was an increase in orders for high-tech products--such
as computers, telecommunications equipment, semiconductors,
electrical equipment and medical products--reported by the Boston,
Dallas, Minneapolis and San Francisco districts. There were some
reports of slower growth in a few industries, however. Several
districts, including Boston, Dallas, Philadelphia aid St. Louis,
noted weaker orders for apparel. Boston and Dallas also said demand
for packaging products slowed. The Bosom and San Francisco districts
reported softer orders for some construction-related products.
Chicago said new orders had slowed in all industries except those
related to auto manufacturing.
Services
In those districts reporting on the service sector, contacts
suggested continued strength in demand for business services. Some
districts indicated increased demand for temporary services, and
contacts in Chicago, Dallas and Richmond said they were having
difficulty filling temporary positions. After strong growth
throughout the year, demand for accounting and legal services in the
Dallas district eased somewhat, according to contacts. Tourism
remained strong in the Atlanta district, despite hurricane-damaged
beach properties in the Florida Panhandle and the recent closing of
New Orleans' land based casino. San Francisco also reported strong
tourism but said the warm weather may hurt ski areas.
Real estate and construction
Housing
Single-family construction activity was mixed. New home sales and
construction were strong in the Dallas and Minneapolis districts.
Residential activity was mixed among states in the Boston, New York
and San Francisco districts. The pace of home sales slowed in the
Chicago district after strengthening in recent months. The Richmond
and St. Louts districts reported declines in home construction since
the last beige book report.
A few districts reported increases in multifamily construction. In the Atlanta district, low vacancy rates and higher rents were boosting new apartment development. The Kansas City and St. Louis districts also reported a pickup in apartment construction over the past six weeks.
Commercial
Commercial real estate markets strengthened across much of the
country in October and November, and were a bright spot for several
districts. High demand and low vacancies boosted nonresidential
construction in the Atlanta, Chicago, Minneapolis and St. Louis
districts. Strong demand for prime office space pushed up rents in
the Atlanta, Dallas and Richmond districts. New York was the only
district bank that reported weaker commercial real estate
conditions.
Leasing
activity fell in downtown Manhattan in October, and the midtown
vacancy rate rose slightly as continued strong leasing activity
failed to offset a sharp rise in available space.
Financial institutions
Loan demand continued to increase in most Federal Reserve districts
in late October and early November. Lending was strongest in the
Dallas, Kansas City and Philadelphia districts. Most district banks
said commercial and industrial lending remained strong and some said
mortgage refinancings had picked up. The exceptions were the
Cleveland, New York and St. Louis districts which reported a slight
moderation in loan demand growth. There were some reports of rising
past due loans and consumer delinquencies in these districts, but
bankers said current levels were not worrisome.
Agriculture and natural resources
Although several districts reported below normal crop yields, strong
export demand and higher crop prices suggest improvement in farm
income. Corn and soybean yields remained below last years levels in
Chicago and Kansas City, and dry weather in the Dallas and Kansas
City districts impeded the growth of some crops such as winter
wheat. The San Francisco district said sales of agricultural
products were high and that exports were above last year's levels.
Higher grain prices pushed up feed costs, squeezing margins for
ranchers who continue to suffer from low beef cattle prices.
The Dallas and Kansas City districts reported little change in energy markets, despite a weather-related rise in natural gas, heating oil and crude oil price in recent weeks. Natural gas spot prices rose from $1.70 per thousand cubic feet in mid-October to $2.10 per thousand cubic feet by late November. Wholesale heating oil prices rose by 5 cents per gallon as colder weather hit the Midwest and East Coast. The price increases were not enough to encourage new drilling activity, however. Mining and drilling contacts in die Minneapolis district were pleased with current levels of activity.
Labor markets and wage pressures
Most Federal Reserve districts reported tight labor market
conditions for both skilled and unskilled workers. San Francisco
reported shortages of construction workers. Chicago, Dallas and
Richmond cited difficulty filling temporary service positions.
Boston, Cleveland and Dallas noted a shortage of workers in high-
tech jobs such as software development, systems analysis and
electrical engineering. Richmond said there was a general scarcity
of labor, particularly in skilled manufacturing positions. There
were widespread reports across the districts of labor shortages for
unskilled workers, and entry-level compensation was reportedly
rising in the Chicago, Dallas and Minneapolis districts. Only the
Atlanta district noted subsiding wage pressures.
Price pressure
There were a few reports of rising prices for intermediate goods
from district banks, but overall price pressures were minimal. San
Francisco reported higher prices for industrial equipment and
machine tools, while Kansas City and Minneapolis said prices were
rising for aluminum and packaging materials. However, paper
producers and corrugated box manufacturers in Dallas said they were
lowering selling prices, and Boston noted a recent decline in paper
prices. Petrochemical and steel prices continued to come down
according to some district reports. Retailers in several districts
reported heavy discounting for the holiday season. Contacts in the
temporary services industry said despite wage pressures they could
not raise fees because of fierce competition.