Beige Book: National Summary
March 3, 2004
Economic activity continued to expand in January and February, according to information received by Federal Reserve District Banks. Growth was variously described as moderate in Boston, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, and Kansas City, firm in Minneapolis, sound in San Francisco, and showing signs of accelerating in New York, Richmond, and Dallas.
Consumer spending rose in most Districts. There were gains in sales of general merchandise in January and February in all Districts except St. Louis, which reported a slight decline. In contrast to the general improvement in merchandise sales, motor vehicle sales slowed in most Districts. Tourism activity increased compared to last winter. Service sector activity has been expanding. Manufacturing output continued to rise in all Districts except Cleveland, where it has been steady. Real estate market conditions showed little change: commercial markets generally remain soft and demand for housing continues to be strong. Agricultural conditions were mixed: demand for beef appears to be recovering from the effects of mad cow disease but exports of poultry products have been curtailed by the outbreak of avian influenza. Oil and gas production remain at high levels and iron ore processing has increased. Bank lending has been growing moderately.
Employment has been growing slowly in most Federal Reserve Districts. Wages and salaries have increased slightly, but employers report substantial increases for employee health-care costs. Most Reserve Banks reported level or modestly increasing retail prices, but information received from manufacturers and other businesses indicates that commodity prices have moved up more noticeably. The largest increases have been for steel and for lumber and other building materials. Shipping charges have also risen recently.
Consumer Spending
Retail sales of general merchandise rose in most Federal Reserve
Districts in January and February. Strong or strengthening sales
were reported in New York, Richmond, and Dallas. Sales growth was
moderate in Boston, Philadelphia, Chicago, Minneapolis, Kansas City,
and San Francisco. Retailers in Cleveland said sales met or exceeded
their expectations. Retail sales in Atlanta moderated slightly in
February but remained above the level set in February last year.
St. Louis retailers said sales declined slightly relative to a year
ago. Spring apparel was said to be selling well in New York, Philadelphia,
Cleveland, Richmond, Atlanta, St. Louis, and Kansas City. Sales
of electronics, appliances, and home furnishings were relatively
strong in Cleveland, Richmond, Atlanta, St. Louis, and Kansas City.
Jewelry was selling well in Atlanta and St. Louis. Reports on retailers'
inventories across the 12 Federal Reserve Districts indicated that
store stocks were mostly in line with sales. Stores were still receiving
spring merchandise, but retailers were generally maintaining conservative
inventory plans.
Nearly all Districts reported that auto sales slowed during January and February and compared to a year ago. The exceptions were Boston, where sales picked up in February after falling in January, and Philadelphia, where sales were about steady. Auto dealers in several Districts attributed the falloff in sales to cold or stormy weather that kept shoppers off the lots. With the slowdown in sales, dealers' inventories increased.
Tourism activity has improved. Bountiful snowfalls in mountain areas gave a boost to ski resorts, according to Richmond, Chicago, Minneapolis, Kansas City, and San Francisco. Richmond and Atlanta reported good business at beach resorts, and in New York and San Francisco hotel occupancy increased compared to last year.
Services
Service industry activity moved up in the Districts reporting on
this sector. Boston and St. Louis noted increased demand for information
technology services. St. Louis also indicated that demand for insurance
and health-care services increased, but financial services and transportation
activity eased. In the Dallas District, accounting and consulting
firms were seeing increased activity compared with the final quarter
of last year. In San Francisco, demand has strengthened for media,
high-technology, and health-care services. In Richmond service sector
business was steady to somewhat improved.
Transportation activity has increased in most parts of the country. National freight companies based in Richmond indicated their business has improved and trucking companies have seen increased activity in Cleveland and Atlanta. Trucking was said to have slowed seasonally in Dallas, but railroads in the Dallas District noted robust activity. Trucking companies reported increased costs for fuel and they said labor costs have increased as a result of recent regulations limiting drivers' hours. Nonetheless, Chicago and Cleveland indicated that sales of heavy trucks have increased.
Manufacturing
Manufacturing activity rose during January and February in 11 of
the 12 Federal Reserve Districts. The exception was Cleveland, where
factory production rates were said to be steady. There were notable
increases for electronic and electrical equipment in Philadelphia,
St. Louis, and Dallas, and semiconductors in Boston and San Francisco.
Cleveland and Chicago indicated that steel production had increased,
and Philadelphia and St. Louis indicated that output of metal products
had risen. Production of heavy trucks increased in Chicago, and
auto and auto parts production increased in Cleveland and St. Louis,
although the increase was said to be seasonal. Atlanta and Dallas
noted increased output of lumber, and Richmond and St. Louis reported
gains in furniture production. Other manufacturing industries in
which expanding activity was noted were biopharmaceuticals (Boston),
machine tools (Chicago), aerospace (St. Louis), and chemicals (Cleveland
and Chicago). In a few industries reports were mixed. Food processors
posted gains in Dallas but declines in St. Louis. Richmond District
textile producers were gaining business but there were textile plant
closings in the Atlanta District.
Real Estate and Construction
Commercial real estate market conditions have shown little change
in most Districts. Continuing high vacancy rates, slowing leasing
activity, and downward pressures on rents were reported by Boston,
Philadelphia, Cleveland, Chicago, and Kansas City. Conditions in
major commercial real estate markets were mixed in the St. Louis
and Minneapolis Districts. Despite the generally slack and unchanged
market situation in most parts of the country, a few Districts noted
some signs of improvement. In New York and San Francisco vacancies
have moved down slightly and rents have begun to recover. Leasing
activity has picked up in the Washington, DC area of the Richmond
District.
Residential real estate markets continued to be strong in the majority of Districts. Although cold temperatures and winter storms interrupted home building in some areas in January, housing demand generally remained high. Recent gains in home sales and building activity were noted in New York, Philadelphia, Chicago, Dallas, and San Francisco. In Atlanta, St. Louis, Minneapolis, and Kansas City residential real estate activity continued at high levels. In Richmond the housing market was said to have slowed recently, but builders expect activity to pick up. Overall, builders and real estate agents in most Districts expect home sales in 2004 to be close to the 2003 sales record. Home price appreciation was characterized as steady in most Districts with the exception of San Francisco where the rate of increase was said to have slowed somewhat recently.
Agriculture
Agricultural conditions have been mixed. Good citrus crops were
reported in the Atlanta and Dallas Districts, although there was
some concern in Atlanta that world supplies might exceed demand
at current prices. Beef prices were still declining in Chicago and
St. Louis while San Francisco reported that they have firmed and
Dallas noted that prices and demand had not been affected as much
as expected. Chicago reported increased prices for corn, soybeans,
and milk. Dry weather in the Kansas City District has adversely
affected winter wheat and led some cattle producers to postpone
expanding their herds, and ice and snow in the Richmond District
has limited grazing there. The outbreak of avian influenza has curtailed
exports of poultry from the Philadelphia, Atlanta, and Minneapolis
Districts.
Natural Resource Industries
Federal Reserve Districts reporting on the energy sector noted generally
strong, steady conditions in January and February. Drilling activity
has been fairly level in recent months in the Kansas City and Dallas
Districts, but Minneapolis noted a slight decrease in exploration
activity. San Francisco indicated that natural gas producers were
operating close to full capacity. Rising worldwide demand for steel
has stimulated increased iron ore production. Minneapolis reported
that iron ore producers in that District were operating at full
capacity and ore prices were rising.
Financial Services and Credit
In most Federal Reserve Districts lending by commercial banks grew
moderately in January and February. Lending to business firms was
rising in Philadelphia, Richmond, Dallas, and San Francisco. In
Chicago, lending to small businesses was on the rise while overall
business lending was described as flat. Commercial bankers in Richmond
and Atlanta said demand for business loans has been restrained as
firms are reluctant to increase capital spending. Demand for personal
loans, including credit cards, appeared to have eased in New York
and Philadelphia, remained steady in Dallas, and increased in Chicago.
Mortgage lending declined in Atlanta, Dallas, and San Francisco,
and increased slightly in Richmond and Chicago.
Changes in deposits have been mixed. Banks in the Atlanta District have generally had steady growth, but growth has slowed in Cleveland and Dallas where bankers think investors are moving money out of bank deposits and into debt and equity market instruments. Banks in the Kansas City District indicated that their deposit levels have been steady.
Employment and Wages
Federal Reserve Districts reporting on employment generally noted
modest increases in January and February. Boston indicated that
temporary help agencies were placing more workers in manufacturing,
software development, and government. There has been increased demand
for temporary help workers in customer service and sales positions
in the Richmond District, in office and health-care jobs in the
Dallas District, and for a variety of jobs in the Chicago District.
Employment agencies in New York indicated that they have been experiencing
gradual increases in demand, and professional employment agencies
in the Washington, DC area of the Richmond District have boosted
their own staffs in response to increased business from their clients.
San Francisco District employers in the retail, construction, and
agricultural sectors have been increasing their hiring moderately.
Reports on wages indicated that increases continue to be moderate. However, the rate of increase in benefit costs continues to exceed that of wages. Medical insurance and workers' compensation insurance fees remain on the rise in most Districts, although the rate of increase does not appear to be accelerating.
Prices
Most Reserve Banks reported fairly stable or slowly rising retail
prices in January and February, but accelerating increases in some
industrial commodity prices. Steel prices have increased, and prices
of iron ore and scrap metals have risen as well. Prices of lumber
and other materials used in home building were on the rise in most
Districts. Energy prices, especially natural gas, remained high
in most Districts and Atlanta noted price increases for petrochemicals.
Cleveland noted rising rates for shipping by truck and Chicago reported
rising costs for overseas shipping, primarily due to increased costs
for ocean transport.