November 3, 1993
Business activity has been increasing at a slow to moderate pace recently according to reports received in most Federal Reserve districts. More mixed reports on economic conditions were received in the New York and San Francisco districts, however. Consumer spending rose in a majority of districts, with particular strength noted in sales of autos and other durables. Tourism also displayed signs of strength in some districts. Manufacturing showed some improvement, with reports of inventory shortages in the auto sector. Residential real estate markets were generally stronger, and some pickup in commercial real estate markets was noted as well. Several districts continued to report weather-related crop damage, but conditions among livestock producers were generally favorable. Mining showed little overall change, but oil and gas exploration increased. Overall loan demand was steady to slightly improved in most reporting districts. On the price side, retail prices were described as flat or competitive, while price increases were noted for some building materials and manufacturing inputs.
Consumer Spending
Retail sales registered gains in Cleveland, Dallas, Kansas City,
Philadelphia and San Francisco, but were mixed or unchanged in other
districts. Philadelphia noted that discount merchants made greater
gains than others, and Boston retailers commented on the increase in
competition resulting from the arrival of large discounters. Sales
of appliances and furniture were strong in a number of districts,
reflecting increases in home sales and remodeling. Response to the
new fall apparel was mixed, however, with some areas reporting
strong demand and others, sluggishness because of unseasonably warm
weather. Auto sales were good in most of the districts. Some dealers
reported that inventory shortages developed prior to the arrival of
the 1994 models. The five districts reporting on the outlook for the
holiday season stated that over-the-year retail sales growth is not
expected to be as rapid as last year's strong Christmas season.
For the tourist industry, results were generally favorable. In the Richmond district, hotels, motels and resorts indicated an improvement due to good weather and an increase in convention bookings, while Minneapolis reported that casino visitors and campers boosted spending in northern Michigan to a three-year high. Activity was mixed in the Atlanta district, however, stronger on the Gulf in response to new casinos, but down in southern Florida.
Manufacturing
Manufacturing activity showed gains in most districts. In the Boston
area, some contacts achieved double-digit year-to-year sales
increases by introducing new products or expanding their customer
base, and Philadelphia reported gains in new orders and shipments as
well as increased hiring. Cleveland noted that domestic orders for
capital goods appeared to be holding up well, with orders for some
producers running store than 10 percent above a year ago.
Manufacturing activity rose in Richmond and Chicago after a
relatively flat period in preceding months, and Dallas reported a
slow increase in demand and hiring. However, manufacturing activity
was more mixed in St. Louis, New York and San Francisco.
The overall improvement in the manufacturing sector reflected increased demand in several industries, but some industries continued to have problems. A pickup in auto sales spurred output at auto producers and suppliers in several parts of the country, and construction-related products such as lumber, cement, brick and glass were also cited as in widespread demand. Electronics and paper producers added to payrolls in Dallas, and some gains in the semiconductor industry were noted in the Boston and Chicago districts. St. Louis stated that small businesses in particular showed strong growth recently, but that some larger firms were reorganizing and laying off. Aerospace and defense-related cutbacks continued in Arizona, California, Utah and Washington, and apparel plants in Mississippi and Georgia also were still paring back employment in response to sluggish retail sales and foreign competition.
Construction and Real Estate
Most districts reported gains in the residential real estate market,
with several citing sales of new and existing homes as a major
source of strength in their economies. Among those districts where
this sector was particularly strong (with home sales well above last
year in most cases) were Atlanta, Boston, Chicago, Dallas,
Minneapolis and St. Louis. Atlanta noted that demand for new starter
and mid-priced homes remained strong and that luxury home sales have
improved as well, while Boston said sales were strongest in the
areas previously hurt the most by the downturn. Falling inventories
and rising home prices were noted in Kansas City and St. Louis.
Dallas reported strong housing construction in its major cities with
the exception of Houston, while Richmond said that starts in the
district trended up. The residential real estate market was mixed in
the San Francisco district, however, with strength in several states
but softness in much of California. Starts showed little change in
the New York district.
Commercial real estate activity picked up and vacancy rates declined in New York and Richmond, while Atlanta saw signs of a revival in commercial construction. The market continued weak in downtown Minneapolis-St. Paul, but was strong in surrounding suburban areas.
Prices
Minneapolis reported virtually no sign of inflationary pressures,
and Atlanta found that wages and prices generally were stable.
Boston and Cleveland noted that pricing remained competitive and in
Kansas City, while manufacturers' input prices were rising somewhat,
retail prices were generally holding steady. Lumber prices have been
edging up in the Atlanta district, and Dallas reported that some
other construction-related industries have also raised their selling
prices.
Financial Institutions
Overall loan demand at banks was reported as steady to slightly
improved in most of the districts providing this information.
Consumer borrowing has shown some signs of revival, while overall
business borrowing remained slow. Mortgage financing and refinancing
continued strong, and auto loans picked up in some areas. Kansas
City and Philadelphia reported steady to somewhat stronger demand
for other types of consumer loans as well. While business borrowing
has remained soft in general, Philadelphia noted some improvement in
demand from small and middle-sized business borrowers, and Cleveland
also reported that commercial loan demand was up a bit. Bankers in
Dallas noted that lending was slow, however. Loan volume in
California was flat, although other states in the San Francisco
district reported somewhat stronger demand.
Agriculture and Resource-Related Industries
Large parts of the agriculture sector continued to suffer front
weather-related problems, but not all the news from this sector was
downbeat. Richmond reported that yields on most crops were far below
average, despite some recent improvement in temperature and
rainfall, and in the St. Louis district, Delta cotton farmers said
yields were significantly reduced due to heat and insects. Severe
drought conditions persisted in parts of the Atlanta area where crop
yields were down substantially. It was estimated that corn, soybean
and wheat production will be down 20-50 percent from normal in most
of the Minnesota district, and grain quality was reportedly
generally poor. Kansas City noted that corn and soybean crops were
destroyed by flooding in low-lying areas and Chicago stated that
flood-related losses appear greater than earlier estimates,
especially for corn.
On the positive side, cotton and peanut yields in Oklahoma and New Mexico were generally above normal, and the next winter wheat crop in the Kansas City district is reportedly off to a good start. The soybean harvest was progressing well in the Chicago area and Montana's wheat crop was 9 percent above the previous record. Due to the end of a prolonged drought, acreage was up on California farmlands, while Dallas reported that crop production was good in some parts (but suffering from too much moisture in others). Livestock production was reported to be stable or improved in several districts.
Minneapolis stated that metal mining output was generally stable, with no change in copper output in recent months. Gold production there continued above year-earlier levels and mine expansions were reportedly under consideration. Drilling rig counts were higher in both the Minneapolis and Kansas City districts, while Dallas noted that offshore drilling in the Gulf of Mexico remained near capacity levels. Volume was down in the Pacific forestry industry, however, due to restrictions on public harvesting.