09/04/08 -- Reports from the twelve Federal
Reserve Districts indicate that the pace of economic activity
has been slow in most Districts. Many described business
conditions as "weak," "soft," or "subdued." Cleveland and St.
Louis reported some weakening since their last reports while
Boston and New York noted signs of stabilization. Kansas City
reported a slight improvement.
Consumer
spending was reported to be slow in most Districts, with
purchasing concentrated on necessary items and retrenchment in
discretionary spending. Districts reporting on auto sales
described them as falling or steady at low levels. Tourism
activity was mixed but received support from international
visitors in several Districts, and the demand for services
eased in most Districts. The transportation industry was also
adversely affected by rising fuel costs. Manufacturing
activity declined in most Districts but improved somewhat in
Minneapolis and Kansas City. Most Districts reported that
residential real estate markets remained soft. Commercial real
estate activity was slow in most Districts, and some reported
further slackening in demand for office and retail space. Most
Districts reported easing loan demand, especially for
residential mortgages and consumer loans; lending to
businesses was mixed. Districts reporting on the agricultural
sector noted some relief from drought conditions. Districts
reporting on energy and mining activity recorded increased
activity.
Almost all Districts continued to report
price pressures from elevated costs of energy, food, and other
commodities, although some noted that there have been declines
or slower increases in prices for several industrial
commodities and energy products. Business contacts in a number
of Districts indicated that they had increased selling prices
in response to the high costs for their inputs. Wage pressures
were characterized as moderate by most Districts amid a
general pullback in hiring, although several Districts noted
continued strong demand for workers in the energy sector.
Consumer Spending and Tourism
Consumer spending was slow in most Districts. Retail sales and
other consumer spending was reported as mixed or little
changed in Boston, Chicago, St. Louis, and Dallas and weak or
declining in Philadelphia, Richmond, Minneapolis, and San
Francisco. Sales were described as below expectations in
Atlanta but on or close to plan in New York. Cleveland and
Kansas City noted some improvement in retail sales since the
last report. Several Districts reported that consumers were
concentrating on food, staples, and other necessary items
while reducing spending on discretionary items. Chicago,
Dallas, and San Francisco reported noticeable declines in
spending on apparel, electronics, and jewelry. Sales of
furniture and household appliances were weak in most
Districts. San Francisco described sales of this merchandise
as exceptionally poor. A shift of consumer shopping patterns
toward discount stores and lower-price brands and away from
traditional department and specialty stores was observed in
Philadelphia, Chicago, Dallas, and San Francisco. Sales of
motor vehicles were reported to be weak or falling in all
Districts, especially for larger, less fuel-efficient cars,
SUVs, and trucks.
Tourism activity varied across Districts.
Atlanta, Minneapolis, and Kansas City reported mixed or steady
conditions since the last report. Boston, New York, and
Richmond reported improvement since the last report. San
Francisco reported that tourism was flat to down in most major
destinations in that District, significantly so in Hawaii.
International visitors boosted tourism in Boston, New York,
and Minneapolis. In contrast, several Districts noted that
domestic vacationers appeared to be reducing miles traveled
and amounts spent on trips. Boston reported that business
travel has been better than expected.
Nonfinancial Services
Districts
reporting on nonfinancial services generally indicated some
slowing in activity since the last report, although New York
reported stabilization after several months of decline.
Boston, Cleveland, Atlanta, and Dallas noted falling demand
for freight and transportation services, and firms in those
industries reported higher fuel costs negatively affecting
their margins. Dallas reported that airlines were reducing
capacity. Demand for information technology services was
reported to be flat in Boston and down in St. Louis. St. Louis
and San Francisco noted less strength in the health care
sector since the last report. Business and professional
services activity was weakening in St. Louis and San
Francisco. Dallas reported that business was steady at
accounting firms but down at legal firms. Temporary staffing
activity was reported to be mixed in Boston and Richmond and
stable in Dallas.
Manufacturing
Manufacturing activity was weak or declining in most Districts
but improved in others. New York reported some stabilization
after months of decline, Kansas City reported a rebound after
a weakening in June, and Minneapolis and San Francisco have
made gains since the last report. A number of Districts
reported that export orders were bolstering manufacturing
activity, but manufacturers in several of those Districts have
noted some recent slowing in growth from this source. Boston,
Philadelphia, Cleveland, Richmond, Chicago, and Dallas
reported continuing declines in demand for housing-related
products and construction materials. Boston reported declining
output of aircraft and other transportation parts and
equipment, but San Francisco reported a high rate of aircraft
production. Output of motor vehicles and related products was
falling in Boston, Cleveland, Atlanta, Chicago, and Dallas.
Boston and San Francisco reported rising demand for
information technology equipment, but Dallas reported some
weakening in demand for high-technology products.
Manufacturers in Philadelphia, Cleveland, and Kansas City have
increased capital spending or plan to do so, but Boston
reported that manufacturers in that District were reexamining
capital spending plans, and Chicago reported that several
firms were postponing capital projects.
Real Estate and Construction
Residential
real estate conditions weakened or remained soft in all
Districts, except Kansas City, which reported a modest
increase in sales since the last report. Demand for housing
was reported to be still moving down in Boston, New York,
Chicago, St. Louis, and San Francisco. Residential real estate
activity was sluggish in Philadelphia, Cleveland, Richmond,
Atlanta, Minneapolis, and Dallas. New York reported low levels
of single-family construction but a brisk pace of multi-family
construction after an increase in permits in June occasioned
by a change in the New York building code effective July 1.
Chicago reported a faster rate of decline in residential
construction since the last report as well as delays and
cancellations in residential building projects. Richmond and
Kansas City reported that lower and mid-price houses were
selling at a better rate than more expensive houses. Atlanta
and Dallas reported that inventories of unsold new houses were
edging down.
Commercial real estate activity moved down
or remained weak in all Districts except Dallas. Boston, New
York, Philadelphia, Atlanta, and Chicago reported signs of
softening demand for commercial real estate, including
declining leasing activity, rising vacancies, and decreasing
construction. Cleveland, Richmond, St. Louis, Minneapolis,
Kansas City, and San Francisco reported that commercial real
estate market conditions varied across those Districts but in
general were not strong. Dallas reported an increase in office
leasing but at a slower pace than in the last report. Chicago
and Minneapolis noted drops in demand for retail space. Dallas
and San Francisco reported that public projects were buoying
construction activity.
Banking and Finance
District reports on bank lending generally indicated steady or
slowing growth, with weakening demand for residential
mortgages and consumer loans and near steady demand for
commercial and industrial loans. Residential mortgage lending
fell in New York and Richmond, remained slow in Chicago and
Dallas, but gained slightly in Philadelphia. Consumer lending
was flat to down in Cleveland, Atlanta, and St. Louis and
showed little change in New York and Chicago. Commercial and
industrial lending was near steady in New York, Philadelphia,
and Cleveland and eased in Richmond, St. Louis, and Kansas
City. Demand for commercial and industrial loans rose in
Chicago--mostly from small and mid-size firms--and was
described as solid in Dallas. San Francisco reported that
overall loan demand has fallen since the previous report. All
the Districts reporting on loan standards noted tightening.
New York, Cleveland, Richmond, and San Francisco reported
deterioration in credit quality. Dallas indicated that credit
quality was holding up, although bankers in that District
expected it to decline. Districts reporting on bank funding
noted that competition for deposits remained strong. In
Dallas, bankers said they were pursuing non-deposit sources of
liquidity.
Agriculture and Natural Resources
The agricultural sector continued to struggle under drought
conditions in the South, although there was some relief in
July and August. In the Richmond District persistent dry
conditions were expected to delay crop development and reduce
yields; however, the fruit and vegetable harvests have been
mostly completed. Atlanta reported some benefit from recent
rains, although drought conditions persisted in Georgia.
Chicago reported improved crop conditions, although corn and
soybean development was behind schedule. Crop development was
also behind schedule in the St. Louis District where
conditions improved for grain but worsened for cotton.
Minneapolis reported a better than expected harvest of winter
wheat and expectations that corn production would exceed last
year's harvest. Dallas reported dry conditions in much of the
District and noted that Hurricane Dolly destroyed cotton and
sorghum in the Rio Grande valley. Kansas City reported an
increase in wheat yields. Although most Districts with
significant agricultural sectors reported strong demand for
their products, they also noted that fuel, feed, and
fertilizer costs had risen, putting pressure on profit
margins. High costs were reported for livestock operations,
and Kansas City and Dallas reported that herds were being
culled.
Energy and mining activity were strong and
expanding in all of the Districts that reported on these
sectors. Cleveland noted increases in oil, gas, and coal
extraction since the last report. Minneapolis also reported an
increase in energy activity and indicated that almost all
mines in the District were operating at full capacity.
Drilling activity has increased in the Kansas City District
since the last report and was well above the year-ago level.
Dallas reported a continued rise in the rig count, to levels
above last year, with much of the increase due to drilling for
natural gas. San Francisco noted an increase in petroleum
production.
Prices and Wages
All Districts reported continuing upward price pressure from
elevated input costs, although several noted recent retreats
in some commodity and energy prices. Philadelphia reported
rising prices for food products, industrial materials, and
metals. Cleveland reported continuing increases in raw
material costs, and business contacts in San Francisco said
upward price pressure remained significant. Chicago,
Minneapolis, and Dallas business contacts noted recent
declines in commodity and energy prices but said price levels
remained high. In Philadelphia, retailers reported rising
wholesale costs. Retail price inflation edged up in Richmond.
New York and Chicago reported little change in retail prices.
Business contacts in Philadelphia, Atlanta, and Dallas
indicated that high prices for their inputs were leading them
to step up the pass-through of higher costs to their selling
prices. Similar reports of the pass-through of costs to prices
came from manufacturers in the Boston and New York Districts
as well as from shippers in the Cleveland District. Chicago
and San Francisco reported that the pass-through of costs to
prices was more limited.
Labor market conditions were unchanged or
somewhat softer in most Districts compared with the last
report. Wage increases were typically characterized as
moderate. Boston reported mostly modest wage increases except
for greater hikes in salaries at information technology
companies. Philadelphia reported moderate wage gains and
limited hiring. Cleveland noted wage pressures in the energy
sector but not in manufacturing or construction. Atlanta
received scattered reports of wage increases, mainly in the
professional services and the energy sectors, and more
generally in coastal areas undergoing rebuilding after storm
damage. Chicago indicated that labor markets have weakened and
there was little wage pressure other than for a few skilled
trades. Kansas City reported steady wage pressure but noted
that there were shortages of qualified workers in the energy
sector. Dallas also noted shortages of workers in the energy
sector but indicated that wage pressure was mild overall. San
Francisco reported some easing in upward wage pressure as
firms in that District have been reducing staff counts,
although demand remained strong for skilled workers in the
resource extraction and information technology industries.
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