January 19, 1994
Economic activity continued to expand with signs of acceleration in some sectors, according to most Federal Reserve District reports. Consumer spending, especially on household-related items, was strong during the holidays in most districts. Manufacturing activity strengthened, and the manufacturing employment picture improved somewhat. Residential real estate sales and construction grew robustly in almost all districts. Commercial real estate leasing and construction improved in some districts but remained generally sluggish. Loan demand increased somewhat in many districts. Several districts reported weather-related stress to agricultural crops, but crop prices rose and crop income prospects improved. Little upward pressure on wages and prices was indicated by almost all districts; however, reports of lumber price increases were widespread, and scattered labor shortages were reported. Weak economic conditions continued in southern California.
Consumer Spending
Retailers in most districts enjoyed strong sales that met or
exceeded expectations during the holiday season, although the Boston
District's retailers were disappointed with their modest gains. In
the Atlanta, Dallas, and New York Districts, stores offered earlier-
than-normal holiday price discounts and in the Chicago, St. Louis,
and New York Districts, retailers indicated they advertised more
than normal. Retailers in the Boston, Kansas City, Philadelphia,
Richmond, and St. Louis Districts expected continued economic growth
to boost retail sales moderately this spring.
Most districts reported robust sales of electronics and other home- related durables during December. Retailers in the Dallas, Minneapolis, St. Louis, and San Francisco Districts indicated that automobile sales were strong, and those in the Kansas City and St. Louis Districts expressed optimism about prospects for sales of new cars and trucks in 1994. In contrast, the Atlanta, Chicago, Cleveland, Dallas, New York, and San Francisco Districts reported that apparel sales were weak; Kansas City, however, reported generally strong apparel sales.
Manufacturing
Most districts reported that manufacturing activity strengthened.
Reports from Cleveland and Minneapolis indicated that some factories
were operating near capacity, and several districts reported signs
of stronger demand for manufactured products. The Atlanta, Boston,
Dallas, and Minneapolis Districts noted increased demand for
construction-related products, while stronger demand for automotive
products was cited in the Boston, Chicago, and Cleveland reports.
Personal computer orders strengthened in the Boston and San
Francisco Districts, while capital equipment orders rose in the
Cleveland District. The Atlanta District reported continued strength
in textile orders arising from residential home sales and
refurbishing. Defense-related manufacturing, however, continued to
be sluggish in the Boston, Atlanta, and San Francisco Districts, and
apparel manufacturing apparently was lackluster in the Atlanta and
Dallas Districts. Looking forward, manufacturers in several
districts expected continued economic expansion in early 1994 and
looked for continued improvement in business conditions.
Most reports of manufacturing employment indicated improvement. Producers in several districts increased employment a little and those in some districts planned to add workers if economic growth continues. Manufacturers in the Boston and Richmond Districts expected stable employment levels in 1994. Defense-related cutbacks in employment, however, were reported in the Atlanta, Cleveland, St. Louis, and San Francisco Districts, and apparel manufacturers in the Atlanta District reported further cutbacks in employment and a shortening of the factory workweek. In the New York District, several major manufacturers announced layoffs.
Real Estate
Reports from most districts indicated substantial improvement in
residential real estate sales and construction. Home sales increased
in the Boston, Richmond, Atlanta, St. Louis, and Kansas City
Districts. Homebuilding also increased in these districts and in the
New York, Minneapolis, and Dallas Districts, where residential
construction activity exhibited unusually strong growth. San
Francisco contrasted continued weakness in residential sales and
construction in southern California with robust housing activity in
Idaho.
Commercial real estate activity was mixed. Office vacancy rates fell in the Richmond and Atlanta Districts. New York reported some reduction in Manhattan vacancy rates, but that market was still considered weak. Commercial construction increased in the Richmond, Dallas, and Minneapolis Districts. Commercial real estate in California remained weak according to the San Francisco report.
The New York, Richmond, Atlanta, Kansas City, Dallas, and San Francisco Districts reported tight markets for building materials and/or construction labor. In several districts, short supplies of these inputs delayed some construction projects; in some districts, the tightness in supplies of inputs led to higher construction costs, which placed upward pressure on housing prices.
Finance
Commercial banks in most districts reported that loan demand
strengthened somewhat. Bankers in the Atlanta, Cleveland, Dallas,
Kansas City, Philadelphia, Richmond, and St. Louis Districts
reported moderately higher commercial loan demand. Sluggish
commercial lending was reported by banks in the New York District,
however, and some lenders in the San Francisco District noted that
commercial loan demand had weakened slightly. Consumer loan demand
was reported to be moderately higher in the Atlanta, Cleveland,
Dallas, Kansas City, New York, Philadelphia, and St. Louis Districts
but was unchanged in Richmond. Atlanta and Cleveland noted
especially high levels of automobile lending, and Kansas City and
Dallas indicated increases in residential real estate lending.
Atlanta and Cleveland noted slight declines in mortgage
refinancings, although activity remained high in both districts.
Bankers in the New York, Philadelphia, and Richmond Districts
reported sharp declines in refinancing activity.
Wages and Prices
Most districts noted little general upward pressure on prices or
wages, although several reported increases in the prices of lumber
and building materials and scattered labor shortages. The Boston,
Cleveland, Richmond, Atlanta, Minneapolis, Kansas City, and San
Francisco Districts reported that virtually all retail and
manufacturing prices were little changed, and Chicago reported that
the prices paid by manufacturers declined. Energy prices declined in
the Minneapolis, Kansas City, and Dallas Districts. Prices of
aircraft-quality aluminum were soft in the San Francisco District,
but steel prices rose in the Cleveland and Chicago Districts, and
copper prices were somewhat higher in the Minneapolis District.
Increases in the cost of lumber were indicated by the New York,
Richmond, Kansas City, and Dallas reports. The Richmond, Dallas, and
Atlanta reports also indicated higher building materials prices. In
the Atlanta and Dallas Districts, housing prices were moving up
somewhat, and the New York report indicated that higher materials
prices could soon lead to upward pressure on housing prices.
Some districts reported tight labor markets for specific workers. Atlanta, Kansas City, and San Francisco indicated a shortage of skilled construction workers, and Chicago observed that finding skilled production workers and tradespeople was increasingly difficult. Dallas reported a short supply of temporary workers and a rise in their wages, but indicated that competition was keeping wages stable in other business services.
Agriculture
Several districts indicated that worse-than-normal December weather
and the lingering effects of abnormal summer and fall weather
disrupted agricultural activity, but farm income levels remained
steady. Snow and cold weather delayed winter small grain planting in
the western part of the Richmond District, and cold weather delayed
tillage in parts of Minnesota and North Dakota. Dry weather in the
Dallas District damaged pastures, winter wheat, and the hay crop.
Richmond and Dallas contacts expressed concern over the adequacy of
hay stocks. San Francisco reported that potato production was down
in Idaho but up strongly in Washington and Oregon. The Chicago, St.
Louis, Minneapolis, Kansas City, and Dallas Districts noted higher
crop prices. Several districts indicated that higher grain prices
would support crop receipts, but Chicago and Kansas City also noted
that higher grain prices would also push up feed costs and reduce
profit margins for livestock producers. Chicago and St. Louis
indicated declines in livestock production.