May 6, 1992
Overview
Contacts around the Sixth District continue to be more upbeat in
their assessment of economic conditions. Retailers noted slightly
higher sales in April, even after adjusting for a late Easter. Auto
dealers also reported modest sales gains. A majority of
manufacturers observed increased orders and production. Single-family home sales and new home starts continued to improve. However,
bankers reported that commercial and industrial loan demand is
spotty. Prices and wages are generally steady, but a growing
minority of factories reported increasing prices of material inputs.
Consumer Spending
The late Easter holiday creates some difficulty in comparing year-
over-year results, but most retailers believed sales improved
through mid-April even after adjustment for this distortion. Gains
were concentrated in nondurables such as apparel, but several
department store contacts again noted stronger spending on furniture
and other home furnishings. Several district auto dealers reported
modest sales increases, a clear improvement over March. However,
retailers remain generally cautious in placing new orders. Business
at a major wholesale apparel market was described as disappointing.
Most retailers are waiting for a significant and sustained recovery
in sales before increasing their buying substantially. Convention
bookings and tourism in the region continue to improve. Gains are
particularly strong in international travel to Florida.
Manufacturing
Most manufacturing contacts reported gains in new orders and
production. Carpet makers are now seeing increased orders from
residential builders; however, commercial sales remain weak because
of stagnant commercial building. Some producers of sportswear
reported strengthening orders and rising production employment. At
least one apparel company is currently building inventories in
expectation of increased demand. Several paper and packaging
producers have seen increases in orders and shipments. Electronics
producers noted improved sales.
In contrast, energy extraction industries reported very discouraging conditions. Oil and gas company contacts say that business activity continues to decline and that further layoffs are likely over the next few months.
Construction
Most realtors reported continued improvement in housing market
activity during March and early April. However, several noted that
home buyers are interest-rate sensitive and traffic is responding to
changes in mortgage rates. Momentum is now said to be building in
the trade-up market. Resale inventories are reportedly adequate as
more people place their homes for sale in recognition of improved
market conditions. Since supply has increased with demand, few
realtors report any notable increase in home prices.
New home inventories are generally declining. Consistent with this observation, most builders reported increased single-family construction. Several expressed concern that increased lumber costs are constraining profit margins which could potentially weaken the pace of building.
While several commercial realtors reported that the market has yet to hit bottom, others are noting some positive signs in leasing activity and absorption. Spotty improvement in net absorption has yet to generate a recovery in commercial development. Most new construction has been limited to owner-occupied or built-to-suit structures.
Financial Services
Loan demand in the region was generally unchanged from March to
April. No clear upward trend has emerged, either by type of loan, or
state. Refinancing of both mortgage and business loans continues to
represent a large portion of total activity. Loan portfolios are
stabilizing in size after persistent contraction last year. Most
banking contacts report a mood of cautious optimism among businesses
in their communities.
Wages and Prices
Most contacts report that input prices and wages remain relatively
stable. To date, intense competitive pressures are restraining
attempts to raise finished goods prices. However, after a year in
which input price weakness was the rule, a growing minority of
factory contacts are reporting some firming of industrial materials
prices.