May 6, 1998
Reports from Federal Reserve Districts indicated that economic
growth generally continued to be moderate to strong in March and
April. Expansion was occurring in nearly all Districts, although
Dallas reported some recent signs of slowing growth amid basically
strong regional economic conditions and Minneapolis noted some
weakening of business activity in parts of that District. Consumer
spending was generally robust in all regions of the country.
Manufacturing activity advanced. Real estate markets were generally
strong. Agricultural conditions were mixed, as was lending activity.
Activity has eased in oil drilling and mining.
Labor markets continued to be tight. There was some evidence of
increased wage pressures in service industries and for computer and
technical professionals. Despite increases in labor costs, business
contacts indicated that competitive pressures were holding prices in
check for most goods. Some increases in service prices were noted,
however, in the Dallas and San Francisco Districts.
Consumer Spending
Retail sales rose generally throughout the country in April. In New
York, Cleveland, Chicago, and Dallas the strength of the gain
exceeded merchants' expectations. Increases were said to be more
modest in Philadelphia and Richmond, and retailers in several
Districts cautioned that the April results were probably boosted
above trend by this year's late Easter. Spring apparel has been
selling well in Boston, New York, Philadelphia, Atlanta, and
Minneapolis. Healthy sales of home furnishings, furniture, and
appliances were also cited by several Districts. Merchants said
store inventories were in line with sales in Boston, New York,
Cleveland, Atlanta, Chicago, and Kansas City, but some retailers in
Richmond said inventories were at higher than desired levels,
although they were not increasing.
In most of the Districts reporting on auto sales, demand has
slipped. In Philadelphia, Chicago, Minneapolis, Kansas City, and San
Francisco, sales of cars have softened in recent weeks. In contrast,
Cleveland and Dallas reported recent increases in motor vehicle
sales.
Spring tourism was described as very good in Richmond and Atlanta.
Reservations for summer lodging were strong in coastal areas of the
Richmond District, and Atlanta reported that cruise bookings were at
an all time high in Miami. But the recently concluded winter tourism
season in the Minneapolis District was called disappointing.
Manufacturing
Manufacturing activity continued to expand. In March and April,
strong gains were recorded in Chicago and Minneapolis. Activity grew
in Boston, New York, Cleveland, Richmond, St. Louis, Kansas City,
and San Francisco. Philadelphia, Atlanta, and Dallas also reported
gains, but the rate of growth in those Districts has slowed from
earlier in the year.
Manufacturing output has increased in a wide variety of industries.
In particular, construction materials and home-related goods, such
as furniture and appliances, were mentioned by several Districts. In
contrast, output of electronic items was said to be down in Boston
and Chicago, and chemical production fell in St. Louis and Dallas.
Declining exports to Asia were cited as the main cause of weakness
in these industries. Richmond noted falling exports of machinery.
Increased competition from imports was reported by manufacturers of
metals in Philadelphia and chemical manufacturers in Cleveland.
Real Estate and Construction
All Districts reporting on commercial real estate markets described
improvement. For office buildings, rents were rising, vacancy rates
were falling, and construction activity was rising. Boston and
Richmond reported speculative construction in areas around Boston
and the District of Columbia, respectively. New York City office
rental costs have increased markedly since the beginning of the
year. Besides these Districts, increases in office occupancy and
construction were reported from Cleveland, St. Louis, Minneapolis,
Dallas, and Atlanta. However, Atlanta also noted that vacancy rates
in the industrial sector have risen slightly. San Francisco noted
increased construction in Alaska for highways and oil-development
infrastructure.
Demand for housing was on the rise in seven of the eight Districts
that obtained information on this sector. Home construction was
increasing in April in New York, Cleveland, Chicago, St. Louis,
Minneapolis, and Kansas City. Sales of new and existing homes were
up in Richmond, as were home prices. Real estate contacts in several
Districts were wary that recent warm weather has encouraged home
buying earlier this year than normal and that sales could slip
later. Perhaps as a harbinger of this trend, home sales in Atlanta
fell in April after an increase in March.
Agriculture
Agricultural conditions were mixed, as favorable developments for
some crops were offset by weakness in livestock markets. The winter
wheat crop was said to be in good condition in the Cleveland, St.
Louis, and Kansas City Districts; however, St. Louis noted some
damage to the peach crop because of freezing conditions earlier this
season. Spring field preparation and planting was ahead of schedule
in Cleveland, on schedule in Richmond and Dallas, but behind
schedule in Chicago, St. Louis, and Kansas City because of wet
ground. Wet conditions have also delayed planting of cotton and some
other crops in the San Francisco District.
Low livestock and feed grain prices have seriously impaired farm
income in the Minneapolis District, and a fall in hog prices in
Kansas City has led to some liquidation of herds. Livestock sales
and prices were said to be waning in San Francisco also, although
Chicago reported some firming of feed cattle prices in April.
Natural Resource Industries
Oil-drilling activity has declined recently in the three Districts
that reported on it: Minneapolis, Kansas City, and Dallas. Dallas
did note, however, that drilling for gas remains active, although
below the strong level recorded near the end of last year.
Minneapolis noted that mining operations for most minerals have been
reduced because of low prices.
Financial Services and Credit
Most of the Districts reporting on loan demand indicated that
commercial lending was rising and residential mortgage activity was
up, but consumer loan demand had slipped recently. Six Districts
were recording increases in bank lending to businesses while one
District, Cleveland, said business borrowing was flat. The increases
in commercial and industrial loans were posted in Philadelphia,
Richmond, Chicago, St. Louis, Kansas City, and San Francisco.
Mortgage originations, both new and refinancings, were up in all of
the Districts that mentioned real estate lending: New York,
Philadelphia, Richmond, Atlanta, Chicago, Kansas City, and San
Francisco.
Consumer lending varied. In recent weeks it was up in Atlanta and
Chicago, down in Philadelphia, St. Louis, and Kansas City, and flat
in New York and Cleveland. Despite these mixed results, bankers said
the quality of their institutions' consumer loan portfolios was
either steady (in Atlanta) or slightly improved (in Philadelphia,
Cleveland, and Chicago).
Employment and Wages
Seven Districts obtained assessments of their overall labor markets
from business contacts, and in all these, conditions were described
as tight. Strong labor demand was noted in Cleveland, Richmond,
Atlanta, Chicago, Minneapolis, Kansas City, and Dallas.
Wage increases in a variety of industries were estimated to be in a
range of 2 to 6 percent above last year's levels according to
surveys in Boston and Cleveland. Boston noted that computer
professionals and engineers were getting wage increases of 8 to 10
percent, and Cleveland reported that temporary help firms were
boosting wages by 5 to 20 percent.
Richmond and Dallas received reports that wage increases were
becoming more frequent in service industries, but the increases were
not sharp. In Atlanta and Chicago, wage gains were said to be more
widespread, but the size of the increases was not great. Contacts in
St. Louis said upward pressure on wages was growing.
Prices
Information obtained by most Districts suggests that goods prices at
most stages of production are nearly steady. Retail prices were
steady according to reports obtained by Boston, New York,
Minneapolis, Kansas City, and Dallas. Prices for manufacturing
inputs were said to be steady in Boston, Philadelphia, Cleveland,
Minneapolis, and San Francisco. Some increases were noted in the
Kansas City District, however, along with declines. As already
noted, livestock prices were said to be weak in San Francisco and
Minneapolis, and Minneapolis reported low prices for natural
resource commodities. Oil prices also were reported to be low. One
factor apparently keeping goods prices in check is import
competition in intermediate and finished consumer products,
primarily from Asian countries, as reported to New York,
Philadelphia, Cleveland, Minneapolis, and Dallas. While the prices
of most goods are nearly steady, growing construction activity has
resulted in some price increases for construction materials,
especially lumber. In contrast to the prices of goods, increases in
the prices of business services were noted by Dallas and San
Francisco.